E-Board is a new company that sells electronic hoverboards. After studying this firm for many weeks, you have come up with the following free cash flow projections for the next three years (the year 1 FCF arrives in exactly 1 year):

Year	0	1	2	3
FCF ($mil)	0	20	33	44

• FCF in years 4-10 will be 10% higher than in the previous year (so year 4 will be 48.4, for example).
• FCF in year 11 will be 4% higher than in year 10, and this 4% growth rate will continue forever.
• E-Board has roughly equal amounts of cash and debt on its balance sheet.
• Shareholder's Equity on E-Board's balance sheet is $195 million.
• Its CAPM beta is 2.10 and debt yield to maturity is 6.8%.
• Assume the market risk premium is 5%.
• The 1-year U.S. Treasury bill has a yield to maturity of 0.10%, the 5-year Treasury bond yield is 0.42%, and the 30-year Treasury bond yield is 1.73%.
• E-Board's tax rate is 21%.
• E-Board has 9 million shares outstanding.

a) What is your best estimate of E-Board's stock price?

b) The current price of this stock is $88. Would you sell your shares in this company or buy more?

A chocolate company (ticker: CHOC) announces a surprise acquisition of a peanut butter company (PB). By securing a steady supply of peanut butter, CHOC hopes to produce chocolate peanut butter cups more cheaply.

Joining forces will result in $5.0 million additional free cash flow, starting in one year, above what the firms would generate separately. This incremental benefit will grow by 3% every year thereafter. Both CHOC and PB have WACC of 11%. Prior to the announcement, CHOC's stock price was $125 and it had 67 million shares. PB's stock price was $41 with 17 million shares.

When the takeover is announced, what is your best guess for the dollar change in

a) CHOC's stock price?

b) PB's stock price?