Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt; its beta is 1.40 (given its target capital structure). Vandell's debt interest rate is 7.7%. Assume that the risk-free rate of interest is 6% and the market risk premium is 7%. Both Vandell and Hastings face a 40% tax rate.

Hastings Corporation estimates that if it acquires Vandell Corporation, synergies will cause Vandells free cash flows to be $2.3 million, $3.0 million, $3.5 million, and $3.56 million at Years 1 through 4, respectively, after which the free cash flows will grow at a constant 6% rate. Hastings plans to assume Vandells $8.05 million in debt and raise additional debt financing at the time of the acquisition. Hastings estimates that interest payments will be $1.5 million each year for Years 1, 2, and 3. Suppose Hastings will increase Vandells level of debt at Year 3 to $30.4 million so that the target capital structure becomes 45% debt. Assume that with this higher level of debt, the interest rate would be 8.5%, and assume that interest payments in Year 4 are based on the new debt level at Year 3 and the 8.5% interest rate. The Year 4 interest expense is expected to grow at 6% after Year 4.

What is the Year 4 interest expense? What is the Year 4 tax shield? Year 4 interest expense: $_____ million Year 4 tax shield: $_____ million What is the unlevered value of operations? What is the value of the tax shield? Unlevered value of operations: $_____ million Value of tax shield: $_____ million What is the maximum price per share that Hastings would bid for Vandell? Maximum price per share that Hastings would bid for Vandell: $_____/share