Excel Online Structured Activity: Merger Valuation Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt. Vandell's debt interest rate is 7.9%. Assume that the risk-free rate of interest is 6% and the market risk premium is 7%. Both Vandell and Hastings face a 35% tax rate. Hastings estimates that if it acquires Vandell, interest payments will be $1,500,000 per year for 3 years after which the current target capital structure of 30% debt will be maintained. Interest in the fourth year will be $1.477 million after which interest and the tax shield will grow at 4%. Synergies will cause the free cash flows to be $2.3 million, $3.0 million, $3.4 million, and then $3.91 million in Years 1 through 4, respectively, after which the free cash flows will grow at a 4% rate. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet Merger Valuation Current target capital structure: Debt Equity Number of common shares outstanding Current debt amount 30.00% 70.00% 1,000,000 $11,880,000 Debt interest rate Risk-free rate Market risk premium Tax rate Beta Interest payments, Years 1 - 3 Interest payment, Year 4 Growth rate Free cash flow, Year 1 Free cash flow, Year 2 Free cash flow, Year 3 Free cash flow, Year 4 7.90% 6.00% 7.00% 35.00% 1.10 $1,500,000 $1,477,000 4.00% $2,300,000 $3,000,000 $3,400,000 $3,910,000 Calculate target firm's levered cost of equity Formulas SL #N/A Calculate target firm's unlevered cost of equity su #N/A #N/A #N/A Calculate target firm's unlevered value: Unlevered horizon value of FCF Unlevered value of operations Calculate value of interest tax shields: Tax shield, Year 1 Tax shield, Year 2 Tax shield, Year 3 Tax shield, Year 4 Tax shield, Horizon value #N/A #N/A #N/A #N/A #N/A #N/A w/alue of tax shields Calculate target firm's per share value to acquiring firm: Value of operations Target firm's equity value to acquiring firm Per share value to acquiring firm #N/A #N/A #N/A