Mr. Gattis Pizza, a regional pizza chain, is considering purchasing a smaller chain, CiCis Pizza, which is currently financed with 20 percent debt at a cost of 6%. Mr. Gatti's analysts project that the purchase will result in incremental free cash flows and interest tax savings. The acquisition would be made immediately, if it were undertaken. CiCi's pre-merger beta is estimated to be 2.1, and its post-merger tax rate would be 28 percent. The risk-free rate is 1 percent, and the market risk premium is 6 percent. What is the appropriate rate for a) discounting the free cash flows and b) the interest tax savings? Please show work.

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