If the acquisition is made, it will occur on January 1, 2015. All cash flows shown in the income statements are assumed to occur at the end of the year. GCC currently has a capital structure of 40% debt, but Transworld would increase that to 50% if the acquisition were made. GCC, if independent, would pay taxes at 20%; but its income would be taxed at 35% if it were consolidated. GCC current market-determined beta is 1.4, and its investment bankers think that its beta would rise to 1.5 if the debt ratio were increased to 50%. The cost of goods sold is expected to be 80% of sales, but it could vary somewhat. Depreciation-generated funds would be used to replace worn-out equipment, so they would not be available to TransWorld shareholders. The risk-free rate is 7%, and the market risk premium is 4%. DO not round intermediate calculations

1. What is the appropriate discount rate for valuing the acquisition? % (to 2 decimals)

2. What is the continuing value? thousands ( to 1 decimal)

3. what is the value of GCC to transWorld? thousands (to 1 decimal)

	2015		2016		2017		2018
Net sales	$464		$526		$559		$591
Selling and administrative expense	44		54		64		73
Interest	18		21		24		27

Tax rate after merger		35%
Cost of goods sold as a percent of sales		80%
Beta after merger		1.50
Risk-free rate		7%
Market risk premium		4%
Continuing		7%