Set b as 7

2. The Gryphon Corporation is contemplating an acquisition of the Mustang Corporation. Both Gryphon Corp. and Mustang Corp. have a cost of equity of 16%, cost of debt of 8%, and 25% debt. The 2020 Mustang Corp. income statement is provided below: Total Revenue Cost of Goods Sold Selling and Administrative Expenses Amortization Operating Income (EBIT) Interest Expense Earnings before Taxes (EBT) Income Tax Net Income $500,000 350,000 25,000 50,000 75,000 25,000 50,000 15,000 35,000 a. Find the expected free cash flows for 2021-2023, under the following assumptions: Revenues will grow by (10 +B)% per year COGS will continue to be 70% of revenues Selling and Administrative Expenses will continue to be 5% of revenues Amortization will remain constant at $50,000 per year Tax Rate is 30% Capital expenditures will be 10% of total revenue b. Calculate the weighted average cost of capital to be used to discount the cash flows. C. If Mustang's free cash flows are expected to grow at 5% per year after 2023, what value should Gryphon Corp. be willing to pay for the stock of Mustang Corp