The following represents the targets accounting data you have estimated for the years 2020-2021. Assume that all of these numbers are end-of-year data (i.e. today is January 1^st, 2020 and the revenues, etc. are at the end of 2020, 2021).

In addition, you have the following information for the target and the acquiring firm.

(15 points) Calculate the appropriate cashflows.

(10 points) Calculate the appropriate discount rate for the acquiring firm based on the value of the target.

(5 points) Why is this rate so high?

(15 points) Calculate the target firm value.

(5 points) What would be a reasonable offer (i.e. $/share) for the target.

Revenues Cost of Goods Sold Depreciation A&G Interest Retained Earnings 2020 $100,000,000 $30,000,000 $10,000,000 $8,000,000 $4,000,000 $2,000,000 ge 2021 $120,000,000 $55,000,000 $15,000,000 $11,000,000 $5,000,000 $3,000,000 Acquiring Firm Cap Structure: Debt = 70% Taxes = 35% Target BL = 1.8 Taxes = 40% Cap Structure: Debt = 20% # of Shares Outstanding = 4,500,000 Current Price per Share = $30 Est. Future Growth Rate = 4% Other Information T-bond rate = 5% Mkt Risk Premium = 6% Revenues Cost of Goods Sold Depreciation A&G Interest Retained Earnings 2020 $100,000,000 $30,000,000 $10,000,000 $8,000,000 $4,000,000 $2,000,000 ge 2021 $120,000,000 $55,000,000 $15,000,000 $11,000,000 $5,000,000 $3,000,000 Acquiring Firm Cap Structure: Debt = 70% Taxes = 35% Target BL = 1.8 Taxes = 40% Cap Structure: Debt = 20% # of Shares Outstanding = 4,500,000 Current Price per Share = $30 Est. Future Growth Rate = 4% Other Information T-bond rate = 5% Mkt Risk Premium = 6%