Mini Case #3: Capital Budgeting at Joes. Inc Joes, Inc., a publicly traded firm, is considering the acquisition of a private company, Blaster.com, which specializes in restoring damaged artwork and vintage pho- tographs for high net worth individuals. Joe's CEO and chairman of the board, Billie Day described the motivation for the acquisition as follows: "We are running out of profitable investment opportunities in our core vintage shoe restoration business, and our shareholders expect us to continue to grow. Therefore, we must look to acquisitions to expand into growing markets. Joes, Inc.'s common stock is currently trading at S50 per share, and the firm has 100,000 shares outstanding. The book value of the common stock is $20 per share However, as mentioned by Mr. Day, sales had been slowing recently and the board was concerned that soon the share price would also begin to flag as investors figured out that the firm was running out of positive NPV investments. The firm has $2,000,000 market value of bonds trading at a yield to maturity of 6.2%. You have been hired as a consultant to Joes to evaluate the proposed acquisition of Blaster.com. There is considerable dissension among senior management and the board about whether the acquisition should be undertaken. Your job is to perform a thor- ough analysis of the merits of the proposed acquisition and make a After several meetings with Joes management and a review of Blaster's financial perfor- mance and industry structure, you gathered the data shown in Table 1 below Forecast Data for Blaster.com (In $ 000) 2017 2018 2019 2020 2021 1,000.0 1250.0 1,875.0 2,100.0 3,750.0 25.0 55.0 70.0 80.0 80.0 15.0 30.050.072.0 80.0 94.4 101.4 108.6 115.9 22.4 Sales Revenue Investment in CapEx and NWC Interest payments Blaster.com currently has $1,475,000 (market value) in long-term debt, with a coupon rate of 7%. Its cost of goods sold (COGS) is expected to be 42% of sales revenues, and selling, general and administrative (SG&A) expenses are expected to be 15 percent of revenues. The depreciation numbers listed above are already included in COGS percentage estimates. The firm's corporate tax rate is 40% and its current cost of borrowing is 6.2%