Corp.

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Year 0

Cash & equivalents $40 million

Interest expense $7.2 million

Capital Expenditures per share $2.4

Working Capital Investment per share $1.7

Market Value of Equity per share $56

Target debt ratio 30%

Cost of equity (CAPM) 12%

Depreciation (per share) $1.8

Tax rate 37.5%

Net Income (earnings) per share $5

Shares outstanding 5 million

Earnings, capex, depreciation and working capital will all grow at 5% in the future.

If ABC became an acquisition target and another company offered $450 million to buy it, and the current market price represents the fair value of equity, the (show work):
a. ABC management should not take is since $450 is more than the total value of the firm
b. ABC management should not take is since $450 is less than the total value of the firm
c. ABC management should take is since $450 is more than the total value of the firm
d. ABC management should take is since $450 is less than the total value of the firm