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Recall our discussion on the APV valuation method. You are the CEO of a paper company and you are considering an acquisition of a forestland
Recall our discussion on the APV valuation method. You are the CEO of a paper company and you are considering an acquisition of a forestland in southern Mississippi. Analysts working in your company have estimated that the wood harvested from that land will generate FCFs of $4.5 million per year, with an unlevered cost of capital of 7%. In order to make such an acquisition, your company will permanently increase its debt by $30 million. If your company's corporate tax rate is 25%, what is the value of such an acquisition using the APV method? A. $64.29 million B. 71.79 million C. $7.5 million D. $4.5 million E. $6.5 million
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