Paragraph Open Styles Soal 2 VolWorld Communications Inc, a large telecommunications company, is evaluating the possible ns company, is evaluating the possible ompany (BCC), a regional cable company. VolrWorld's analysts project the following post-merger data for BCC (in thousands of dollar, with a year end of December 31) 2010 2011 2012 2013 2014 2015 Net Sales Selling and administrative expense Interest Total net operating capital Tax rate after merger: 35% Cost of goods sold as a percent of sales: 65% BCC's pre-merger beta:1.40 Risk-free rate: 6% Market risk premium 4% Terminal growth rate of free cash flow: 7 % $450 $18 $555 $600$643 45 53 45 60 47 1,005 68 52 1.075 73 54 1,150 $800 If the acquisition is made, it will occur on 1, 2011. All cash flows shown in the income statenent are assumed to occur at the end of the yec iCC currently has a capital stricture of 40% debt, which costs 10%, but over the net 4 years Vo worki would increase that to 50%, and the target capital structure would be reached by the start of 2015 BCC, if independent, would pay taxes at 20%, but its income would be taxed at 35% if it were consolidated. BCC's current market-determined beta is 1.4. the cost of goods sold is expected to be 65% of sales. a. What is unlevered cost of equity for BCC? b. What are the free cash flows and interest tax shield for the first 5 years? c. What is BCC's horizon value of interest tax shields and unlevered horizon value? d. What is the value of BCC's equity to VolWorld's shareholders if BCC has S300.000 in debt outstanding now? 22:36