CL company is considering an acquisition of HV bookstore. HV currently has a cost of equity of 15%; 20% of its financing is in the form of debt with an interest rate of 10%, and the rest is in common equity. Its corporate tax rate is 20%. After the acquisition, CL expects HV to have the following FCFs and interest payments for the next 3 years (in millions):

Year 1 Year 2 Year 3

FCF 10 18 25

Interest expense 8 10 12.5

1/ What is HVs unlevered cost of equity? What are HVs levered cost of equity and cost of capital for the post-horizon period?

2/ Calculate the horizon value of HVs levered operations using both APV and WACC method.

3/ Using the adjusted present value approach, what is HVs value of operations to CL company?