Richardson's Appliance Corporation is considering a merger with the Jackson's Vacuum Company.Jackson's is a publicly traded company, and its current beta is 1.30. Jackson has been barely profitable, so it has paid an average of only 20 percent in taxes during the last several years. In addition, it uses little debt, having a debt ratio of just 25 percent. If the acquisition were made, Richardson would operate Jackson as a separate, wholly owned subsidiary. Richardson would pay taxes on a consolidated basis, and the tax rate would therefore increase to 35 percent. Richardson also would increase the debt capitalization in the Jackson subsidiary to 40 percent of assets, which would increase its beta to 1.47. Richardson's acquisition department estimates that Jackson, if acquired would produce the following Pre- tax cash flows to Richardson's shareholders: Year Pre-tax Cash flows 11 $2,000,000 2 $2,307,692.31 3 $2,692,307.69 4 $3,076,923.07 5 and beyond Constant growth at 6% These cash flows include all acquisition effects, Richardson's cost of equity is 14 percent, its beta is 1.0 and its cost of debt is 10 percent. The risk-free rate is 8 percent. a. What discount rate should be used to discount the estimated cash flows? (Hint: Use Richardson s ks to determine the market risk premium). (4 marks) b. What is the terminal value?(3 marks) C. What is the dollar value of Jackson to Richardson?(13 marks) d. Why is interest expense deducted in merger cash flow statements, whereas it is not normally deducted in a capital budgeting cash flow analysis