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Newtown Propane Inc. is considering an acquisition of Pirtucon Co., and estimates that acquiring Pirtucon will result in incremental after- tax net cash flows
Newtown Propane Inc. is considering an acquisition of Pirtucon Co., and estimates that acquiring Pirtucon will result in incremental after- tax net cash flows in years 1-3 of $5 million, $7.5 million, and $9 million, respectively. After the first three years, the incremental cash flows contributed by the Pirtucon acquisition are expected to grow at a constant rate of 5% per year. Newtown's current beta is 0.80, but its post-merger beta is expected to be 1.04. The risk-free rate is 4.5%, and the market risk premium is 6.60%. Based on this information, complete the following table by selecting the appropriate values. (Note: Round your intermediate calculations to two decimal places.) Post-merger cost of equity Projected value of the cash flows at the end of three years The value of Pirtucon Co.'s contribution to Newtown Propane Inc. Value
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