Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 20% debt and 80% common equity. Vandells debt interest rate is 6%. Assume that the risk-free rate of interest is 4% and the market risk premium is 5%. Hastings beta is 1.2 and Vandells beta is 2.0. Both Vandell and Hastings face a 40% tax rate. Vandell now has $10 million debt (market value).

Hasting estimates that if it acquires Vandell, interest payments will be $1.5 million,1.5 million, 1.8 million, and 1.8 million from Years 1 through 4. after which interest and the tax shield will grow at 6%. Synergies will cause the free cash flows to be $4 million, $5.0 million, $6 million, and then $7 million, in Years 1 through 4, after which the free cash flows will grow at a 6% rate. Using a APV method, answer the following questions.

1. Which discount rate should be used to value of the tax shields of Vandell?

2. What is the per share value of Vandell to Hastings Corporation?