Set E = 1

5. 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 2022 Mustang Corp. income statement is provided below: a. Find the expected free cash flows for 2023-2025, under the following assumptions: Revenues will grow by (10+E)% 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 2025, what value should Gryphon Corp. be willing to pay for the stock of Mustang Corp