Question
Hunter Transportation is considering purchasing Trans Lines Inc. Hunters analysts project that the merger will result in incremental after-tax cash flows of $2.2 million, $3.6
Hunter Transportation is considering purchasing Trans Lines Inc. Hunters analysts project that the merger will result in incremental after-tax cash flows of $2.2 million, $3.6 million, $4.8 million, and $12 million over the next four years. The horizon value of the firm's operations, as of Year 4, is expected to be $115 million. Hunter Transportation is 100% equity financed. Assume all cash flows occur at the end of the year. The acquisition would be made immediately, if it is undertaken. Trans Lines Inc. post-merger beta is estimated to be 1.3, and its post-merger tax rate would be 40%. The risk-free rate is 4%, and the market risk premium is 7%. What is the value of Trans Lines to Hunter Transport? Submit answer in millions (i.e. $55,000,000 should be entered as 55.00)
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