The valuation of the cat food business is based on cash flows of $180,500 per year over a five year period. The target business has the same risk as the firms overall operations. The cost of equity is 15 percent and the cost of debt is 3 percent on an after-tax basis. The firms capital structure consists of 10 million in equity and 8 million in debt.

Calculate the WACC

What is the most the pet-food manufacturer should pay for acquiring the cat food business per its required return (WACC)?

How would a change in the WACC change the amount the pet-food manufacturer would be willing to pay for the cat food business?