Please consider the following information for the next 4 questions (Q17 - Q20). TAMU Inc. is for sale and there is a price tag of $225,000. Your company, ABC, who is considering the purchase, has a beta of 1.5, the market is expected to have a 20% return and the risk-free rate is 5%. The forecasted free cash flows for the next 4 years for TAMU are 7000 (FCF1), 22000(FCF2), 0(FCF3), and 50000 (FCF4). The company is expected to grow at 4% indefinitely after that. Your company has a debt/equity ratio of 2/3 and the applicable tax rate is 35%. ABC's cost of debt (before taxes) is 8%.

Question 17

What is the cost of equity for ABC company? (Points : 5)

35%

30%

27.5%

22.5%

Question 18.

Continuing with the information from Q17, what is ABC's WACC? (Points : 5)

18.58%

19.70%

21.41%

15.88%

Question 19.

Continuing with the information from Q17, what is the terminal value for TAMUC Inc. after the 4th year (TV4)? (Points : 5)

342,935.53

254,769.21

269,106.57

356,652.95

Question 20.

Continuing with the information from Q17, what is the NPV of purchasing TAMU Inc.? (Points : 5)

positive 2,220.43

negative 2,220.43

positive 178,490.54

negative 178,490.54