Long Format 15. (20 Points Total) The CEO of the Politically Correct Company (PCC) has hired you to advise her and her company about whether or not to acquire Greenerton, a privately held company with no outstanding debt. You have produced the following projections (in $ million) for Greenerton's revenues, costs of goods sold, and depreciation over the next two years (assume that today is 2010). EOY 2011 2012 Revenues 240 280 Costs of goods sold 205 230 Depreciation 15 20 Today (in 2010), Greenerton's net working capital (NWC) is $26 million. For 2011 and 2012, you estimate that Greenerton's net working capital will be 10% of revenues. Because neither PCC or Greenerton are publicly traded, you have gathered data about Crackenut, a publicly traded firm whose operations are similar in risk to Greenerton's. Crackenut has 200,000 shares outstanding, and they are currently trading at $42 a share. It also has $2.8 million in debt. A regression of Crackenut's stock return on the S.P500 return yields a slope of 1.8, and the firm borrows at a rate of 5.6%. The corporate tax rate is 40%, the market risk premium is 8%, and the risk-free rate is 4%. (a) (8 pts) What is the cost of capital (ry) that you should use to value Greenerton? (b) (8 pts ) What are Greenerton's free cash flows for 2011 and 2012? (c) (4 pts) You estimate that Greenerton's free cash flows will grow at 5% forever after 2012. Cal- culate the terminal value of Greenerton at the end of 2012, and the maximum value that PCC should be willing to pay to acquire Greenerton