FALCON Inc. is for sale and there is price tag of $1,200,000. Your company, XYZ, is considering the acquisition of FALCON Inc.

Both of the companies have identical cost of capital values (WACC). Both companies have a beta of 1.5, the market is expected to have a 19% return and the risk-free rate is 3.5%. The forecasted free cash flows for the next 4 years for FALCON are $250,000, $150,000, $0, and $250,000. The company is expected to grow at 5% indefinitely after that. Both companies have a D/E of 1/ 3 and the applicable tax rate is 35%. Both companies have a cost of debt (before taxes) of 7%.

What is the cost of equity for both companies?

32%

23.25%

26.75%

21.66%

What is the WACC for both companies?

21.20%

21.82

28.27%

25.19%

What is the approximate terminal value for the 4^th year (TV4) for FALCON?

1,620,370

1,238,207

1,543,209

1,423,505

What is the approximate NPV of acquiring FALCON for XYZ Company?

Negative $24,819

Positive $33,185

Negative $12,815

Positive $9,711