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Spear-It Inc., has the following financing outstanding: - Debt: 259,000 bonds with a coupon rate of 5.2% and a current price of 105% of par.
Spear-It Inc., has the following financing outstanding: - Debt: 259,000 bonds with a coupon rate of 5.2% and a current price of 105% of par. The bonds have 15 years to maturity and a par value of $1,000. The bond has semiannual compounding. - Equity: 1.7 million shares of common stock with a current price of $129 per share and the beta of the stock is 1.31 . - Market: The corporate tax rate is 22%, the expected market return is 10.5%, and the risk-free rate is 4.86%. Spear-It is considering purchasing Broke N Bored Grill, a privately held restaurant. Broke N Bored currently has debt outstanding with a market value of $22 million. The EBIT for Broke N Bored next year is projected to be $21 million. EBIT is expected to grow at 9% per year for the next five years before slowing to 1.5% in perpetuity. Change in Net Working Capital, Capital Spending, and Depreciation as a percentage of EBIT are expected to be 4%,5%, and 4%, respectively. Broke N Bored has 8.5 million shares outstanding and the tax rate is 22%. What is the terminal value of Broke N Bored's cash flows
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