Please answer part d

You are Chief financial Officer of the ABC Corporation. ABC has two divisions, one of which operates gambling casinos, while the other manufactures rolling pins. The company is considering about acquiring XYZ Corp, its long-time competitor, to expand its capacity in the gambling division, and the Board of Directors has asked you to provide a financial analysis of the acquisition. The Board of Directs suggests $250 million for the acquisition of XYZ's equity. XYZ Corp is expected to generate cash revenues of $85 million per year and operating costs, including depreciation (but excluding interest expenses), of $50 million per year in the next year. The growth rate is expected to be 8% for the next three years. After year 3, the growth rate will be stabilized to the industry average growth rate, which is 3%. The annual depreciation amount of XYZ would be approximately equal to the capital expenditure. In addition, in the first year, S20 million of additional working capital would need to be committed to integrate the system of XYZ with that of ABC Corp. The corporate tax rate is 40%. The expected return on the market portfolio is 15%, while the risk-free rate of return is 5%. XYZ could issue new debt at 10%. Companies that operate purely in the rolling-pin manufacturing industry have an average debt- equity ratio (measured at market value) of one quarter and an average unlevered beta of 1.5. Companies that operate purely in the gambling industry have an average debt-equity ratio (measured at market value) of two-thirds and an average unlevered beta of 0.5. Currently XYZ maintain its leverage ratio to be the same level as the industry average. And ABC plan to use the same level of leverage for XYZ, if ABC acquires XYZ. Based on information above, you arc to complete the M&A analysis to present the Board meeting that is scheduled tomorrow. a) Which valuation approach is appropriate or practical to value XYZ? Why? b) Calculate FCFF of the acquired company for the first three years. c) Calculate the cost of equity for the acquired company. d) Calculate the weighted average cost of capital, c) What is the terminal value? f) Do you agree with the acquisition price the board suggested? What is the maximum price you would pay for XYZ Corp in order for the acquisition to be acceptable