Company X., has the following financing outstanding:

Debt: 300,000 bonds with a coupon rate of 4.0% and a current price of 120% of par. The bonds have 20 years to maturity and a par value of $1,000. The bond has semiannual compounding.

Equity: 2.7 million shares of common stock with a current price of $130 per share and the beta of the stock is 1.19.

Market: The corporate tax rate is 21%, the expected market return is 9.5%, and the riskfree rate is 0.02%.

Company X is considering purchasing Company Z, a privately held restaurant. Company Z currently has debt outstanding with a market value of $15 million. The EBIT for CompanyZ next year is projected to be $13 million. EBIT is expected to grow at 9% per year for the next five years before slowing to 2% in perpetuity. Change in Net Working Capital, Capital Spending, and Depreciation as a percentage of EBIT are expected to be 5%, 4%, and 6%, respectively. Company Z has 12.5 million shares outstanding and the tax rate is 21%.

1. What is the after-tax cost of debt for Company X?

2. What is the cost of equity for Company X?

3. What is the weight of debt and weight of common stock for Company X?

4. What discount rate should Company X use to evaluate the potential purchase of Company Z?

5. What are the Cash Flows for Company Z expected to be in Years 1 - 5 (i.e., what is CF(A) for Years 1 - 5)?

6. What is the terminal value of Company Z's cash flows?

7. What is the total value of Company Z worth to Company X?

8. What is the value of Company Z equity? What is the maximum price per share Company X should be willing to pay for Company Z?