Spentworth Industries Corp. is considering an acquisition of Drugal Brewing Co. (DBC), and estimates that acquiring DBC will result in incremental after-tax net cash flows in years 1–3 of $10 million, $15 million, and $18 million, respectively.

After the first three years, the incremental cash flows contributed by the DBC acquisition are expected to grow at a constant rate of 3% per year. Spentworth’s current beta is 1.20, but its post-merger beta is expected to be 1.56. The risk-free rate is 3%, and the market risk premium is 5.10%.

Based on this information, complete the following table by selecting the appropriate values. (Note: Round your intermediate calculations to two decimal places.)

	Value
Post-merger cost of equity
Projected value of the cash flows at the end of three years
The value of Drugal Brewing Co. (DBC)’s contribution to Spentworth Industries Corp.

Drugal Brewing Co. (DBC) has 4 million shares of common stock outstanding. What is the largest tender offer Spentworth Industries Corp. should make on each of Drugal Brewing Co. (DBC)’s shares?

A) $51.22

B) $40.97

C) $61.46