Pit Row Auto, a national auto parts chain, is considering purchasing a smaller chain, Southern Auto. Pit Rows analysts project that the merger will result in incremental free cash flows as follows:

Year	Free Cash Flow (FCF)
t = 1	$2 million
t = 2	$4 million
t = 3	$5 million
t = 4	$6 million
t = 4 Horizon Value

After Year 4, free cash flows are projected to grow at a constant rate of 3% per year. Assume all cash flows occur at the end of the year. The acquisition would be made immediately, if it is undertaken, and equity financing will be used. The applicable Weighted Average Cost of Capital (WACC) for this transaction is 8%.

a. Calculate the Horizon Value (HV)as of December 31, Year 4 applicable to this merger and insert this value into the chart shown above.

b. Using the free cash flow amounts shown in the chart above, together with the Horizon Value (HV) that you calculated in Part a of this problem, calculate the value of Southern Auto assets to Pit Row Auto as of t = 0.