TransWorld Communications, Inc., a large telecommunications company, is evaluating the possible acquisition of Georgia Cable Company (GCC), a regional cable company. TransWorlds analysts project the following postmerger data for GCC (in thousands of $):

2017 2018 2019 2020

Net Sales 450 518 555 600

Selling & Admn. Expenses 45 53 60 68

Interest Expense 18 21 24 27

Additional Date: Tax rate after the merger 35% Cost of goods sold as a % of sales 65% Beta after the merger 1.50 Risk-free rate 8% Market risk premium 4% Terminal growth rate of cash flow 7% If the acquisition is made, it will occur on Jan. 1, 2017. All cash flows shown in the income statement are assumed to occur at the end of the year. Depreciation-generated funds would be used to replace worn-out equipment, so they would not be available to TransWorlds shareholders.

a) What is the appropriate discount rate for valuing the acquisition?

b) What is the value of GCC to TransWorld?

c) If GCC currently has 25,000 shares of common stock outstanding, what is the maximum price per share that TransWorld should offer for GCCs shares? If the tender offer was accepted at this maximum price, what is the NPV of the acquisition to TransWorld?