Madura Auto, a national auto parts chain, is considering purchasing a smaller chain, South Illinois Parts (SIP). Madura 's analysts project that the merger will result in the following incremental free cash flows, tax shields, and horizon values:

Year 1 2 3 4

Free cash flow $1.5 $4.5 $4.5 $10.5

Unlevered horizon value 112.5

Tax shield 1.5 1.5 3 4.5

Horizon value of tax shield 48

Assume that all cash flows occur at the end of the year. SIP is currently financed with 30% debt at a rate of 10%. The acquisition would be made immediately, and if it is undertaken, SIP would retain its current $22.5 million of debt and issue enough new debt to continue at the 30% target level. The interest rate would remain the same. SIP's pre-merger beta is 2.0, and its post-merger tax rate would be 34%. The risk-free rate is 8% and the market risk premium is 4%. What is the value of SIP to Madura ?

A) $92.95 million B) $61.96 million C) 84.65 million D) $64.56 million