For this and the next three questions:

1. Teddy Corp is considering acquiring Daniels Company. Daniels has a capital structure consisting of $5 million (market value) in 11% bonds and $10 million (market value) of common stock. Currently, Daniels has a beta of 1.36. Teddy's beta is 1.02. Both firms have tax a rate of 40%. Teddy's debt ratio is 40%. The free cash flows estimated for Daniels are $3 million for each of the next 4 years and a horizon value of $10 million in Year 4. Interest tax savings are estimated to be $1 million for each of the next 4 years and a horizon value of $5 million in Year 4. Additionally, new debt would be issued to finance the acquisition. The new debt would have an interest rate of 8%. Currently, the risk-free rate is 6% and the maret risk premium is 4%. Calculate the current WACC for the Daniels Company.

a. 8.06%

b. 9.83%

c. 11.29%

d. 11.44%

e. 13.49%

f. None of the above

2.. Calculate the target firm's (Daniels Company) cost of equity using the CAPM.

a.

10.08%

b

11.01%

c.

11.44%

None of the above

3.. Calculate the target firm's cost of UNLEVERED equity using the following formula: wDrD + wErEL

a.

9.83%

b.

10.06%

c.

11.29%

d.

11.44%

e.

13.49%

4. Calculate the value of the target firm's equity? There are no non-operating assets to consider.

		a. $17.11m
b.		$17.19 m
c.		$17.92m
d.		$22.11m
e.		$22.92m
f.		None of the above