Apilado Appliance Corporation is considering a merger with the Vaccaro Vacuum Company. Vaccaro is a publicly traded company, and its current beta is 1.30. Vaccaro has been barely profitable, so it has paid an average of only 15% in taxes during the last several years. In addition, it uses little debt, having a debt ratio of just 30%.

If the acquisition were made, Apilado would operate Vaccaro as a separate, wholly owned subsidiary. Apilado would pay taxes on a consolidated basis, and the tax rate would therefore increase to 35%. Apilado also would increase the debt capitalization in the Vaccaro subsidiary to 50% of assets, which would increase its beta to 1.57. Apilado's acquisition department estimates that Vaccaro, if acquired, would produce the following net cash flows to Apilado's shareholders (in millions of dollars):

Year	Net Cash Flows
1	$1.30
2	$1.50
3	$1.75
4	$2.00
5 and beyond	Constant growth at 8%

These cash flows include all acquisition effects. Apilado's cost of equity is 13%, its beta is 1.0, and its cost of debt is 9%. The risk-free rate is 8%.

1. What discount rate should be used to discount the estimated cash flows? (Hint: Use Apilado's r_s to determine the market risk premium.)
2. What is the dollar value of Vaccaro to Apilado? Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $13,000,000 should be entered as 13.
3. Vaccaro has 1.1 million common shares outstanding. What is the maximum price per share that Apilado should offer for Vaccaro? Round your answer to the nearest cent.