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Pizza Palace (PP), is considering purchasing a smaller chain, Western Mountain Pizza. PP's analysts expect the merger to result in incremental net cash flows as

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Pizza Palace (PP), is considering purchasing a smaller chain, Western Mountain Pizza. PP's analysts expect the merger to result in incremental net cash flows as follows: Y1=$1,500,000, Y2=$2,000,000,Y3=$3,000,000,Y4=$5,000,000. In addition, Western's Y4 cash flows are expected to grow at a constant rate of 5% after Y4. Western's post-merger beta is expected to be 1.5 and its tax rate would be 40%. The risk free rate is presently 5% and the market risk premium is 4%. What is the Terminal value that goes into the calculation of the value of Western to Pizza Palace? a. 87,500,000.00 b. 2,193,574.14 c. 60,932,615.11 d. 66,100,785.47

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