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1. What is the Cash Flow for Year 2018 ( The Cash Flow to be used for merger analysis)?

2. What is the Cash Flow for year 2021 ( The Cash Flow to be used for merger analysis)?

3. What is the value of company B to company A?

4. If B has 9,000,000 common shares outstanding, what is the maximum price share that A should offer for B?

Company A with excess cash is considering the acquisition of company B. Company A estimates of B's earnings potential if it comes under A's management (in millions of dollars). The interest expense listed here includes the interest (1) on B's existing debt, (2) on new debt that A would issue to help finance the acquisition, and (3) on new debt expected to be issued over time to help finance expansion within the new B division, the code name given to the target firm. The retentions represent earnings that will be reinvested within the B division to help finance its growth. Company B currently uses 35% debt financing, and it pays federal-plus-state taxes at a 35% rate. Security analysts estimate B's beta to be 1.07. If the acquisition were to take place, A's would increase B's debt ratio to 45%, which would increase B's beta to 1.62. Further, because company A is highly profitable, taxes on the consolidated firm would be 40%. Depreciation cash flows would have to be reinvested within the division to replace worn-out equipment. You estimate the risk-free rate to be 4% and the expected market return to be 12%. You also estimate that cash flows after 2021 will grow at a constant rate of 5%. The after tax cost of debt is 7%. The table presents estimates of the company B's data for merger analysis. 2019 88,000,000 50,000,000 6,000,000 2018 70,000,000 30,000,000 2020 114,000,000 75,000,000 8,000,000 2021 Net Sales 141,000,000 92,000,000 10,000,000 COCS30.000000092.0,00 Selling & Admin5,000,000 Expenses Interest Expense 2,000,000 4,000,000 4,000,000 5,000,000 Necessary Retained Earnings 2,000,000 7,000,000 9,000,000 8,000,000