Miami Properties is considering purchasing Gainesville Properties. Miami's analyst projects that the merger will result in incremental after-tax cash flows of $2 million, $4 million and $5 million over the next three years. The horizon value of the firm's operations, as of Year 3, is expected to be $50 million. Assume all cash flows occur at the end of the year. The acquisition would be undertaken immediately, and Miami plans to finance the acquisition with a target capital structure of 50% debt and 50% equity. The tax rate for Miami is 30%.

What is the value of Gainesville properties for Miami properties based on the following information? Use the CAPM to calculate the cost of equity for the acquisition.

5%/Yr 5%/Yr Risk-free rate Risk premium on the market Debt rating - Miami properties used for acquisition Beta of equity-Miami properties Risk Premium for Real Estate Corporate Bonds (Includes default, maturity, and liquidity) AAA 0.5% | 1.0% 1.5%