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Company Xs WACC is 9%, and Company Ys WACC is 11%. You have been hired as a valuation consultant for the deal. These are your

Company Xs WACC is 9%, and Company Ys WACC is 11%. You have been hired as a valuation consultant for the deal. These are your estimates along with other information for Company Y: Next years estimated EBIT = $30 million. After next year, EBIT is expected to grow at 4% forever. Depreciation is 10% of EBIT Net capital spending is 12% of EBIT Change in net working capital is 15% of EBIT Zero cash on the balance sheet 200,000 shares outstanding Debt is $150 million and yearly interest expense is $14 million Company Y pays tax at the 38% level Company Xs board hires another M&A consultant that believes that Company Y terminal value for next year should be based on an EV/EBITDA multiple. She believes that firms in Company Ys sector will have EV/EBITDA = 6 next year. Following this consultants guidance, how much should Company X now pay for Company Y?

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