TransWorld Communications Inc., a large telecommunications company, is evaluating the possible acquisition of Georgia Cable Company (GCC), a regional cable company. TransWorld's analysts project the post-merger data for GCC (in thousands of dollars) gathered in the Excel Online file below. If the acquisition is made, it will occur on January 1, 2018. All cash flows shown in the income statements are assumed to occur at the end of the year. GCC currently has a capital structure of 40% debt, but Trans World would increase that to 50% if the acquisition were made. GCC, if independent, would pay taxes at 20%; but its income would be taxed at 30% if it were consolidated. GCC's current market-determined beta is 1.35 , and its investment bankers think that its beta will rise to 1.50 if the debt ratio were increased to 50%. The cost of goods sold is expected to be 65% of sales, but it could vary somewhat. Depreciation-generated funds would be used to replace worn-out equipment, so they would not be available to TransWorld's shareholders. The risk-free rate is 10%, and the market risk premium is 3%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Use only the values provided in the problem statement (including the Excel Online file) for your calculations. a. What is the appropriate discount rate for valuing the acquisition? Do not round intermediate calculations. Round your answer to two decimal places. % b. What is the continuing value? Do not round intermediate calculations. Enter your answer in thousands of dollars. For example, an answer of $145.2 thousands should be entered as 145.2, not 145,200. Round your answer to two decimal places. 5 thousand c. What is the value of GCC to TransWorld? Do not round intermediate calculations. Enter your answer in thousands of dollars. For example, an answer of $145.2 thousands should be entered as 145.2, not 145,200. Round your answer to two decimal places. 5 thousand Merger Analysis Target's Post-Merger Data: Net sales Selling and administrative expense Interest Tax rate after merger Cost of goods sold as a \% of sales Target's debt ratio after merger Beta after merger, bL Risk-free rate, rRF Market risk premium, RPM Continuing growth rate of CFs available to acquire \begin{tabular}{rrrr} \multicolumn{5}{c}{ (in thousands dollars) } & \multicolumn{1}{l}{\begin{tabular}{l} 2021 \\ \hline 2018 \end{tabular}} & 2019 & \multicolumn{1}{c}{2020} & \multicolumn{1}{c}{20201} \\ \hline 459 & 536 & 571 & 69 \\ 44 & 53 & 63 & 69 \\ 18 & 21 & 24 & 27 \end{tabular} Target's Pre-Merger Data: Target's debt ratio before merger Target's tax rate before merger 40.00% Beta before merger. bL 20.00% Unlevered beta, bu 1.35 0.88 TransWorld Communications Inc., a large telecommunications company, is evaluating the possible acquisition of Georgia Cable Company (GCC), a regional cable company. TransWorld's analysts project the post-merger data for GCC (in thousands of dollars) gathered in the Excel Online file below. If the acquisition is made, it will occur on January 1, 2018. All cash flows shown in the income statements are assumed to occur at the end of the year. GCC currently has a capital structure of 40% debt, but Trans World would increase that to 50% if the acquisition were made. GCC, if independent, would pay taxes at 20%; but its income would be taxed at 30% if it were consolidated. GCC's current market-determined beta is 1.35 , and its investment bankers think that its beta will rise to 1.50 if the debt ratio were increased to 50%. The cost of goods sold is expected to be 65% of sales, but it could vary somewhat. Depreciation-generated funds would be used to replace worn-out equipment, so they would not be available to TransWorld's shareholders. The risk-free rate is 10%, and the market risk premium is 3%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Use only the values provided in the problem statement (including the Excel Online file) for your calculations. a. What is the appropriate discount rate for valuing the acquisition? Do not round intermediate calculations. Round your answer to two decimal places. % b. What is the continuing value? Do not round intermediate calculations. Enter your answer in thousands of dollars. For example, an answer of $145.2 thousands should be entered as 145.2, not 145,200. Round your answer to two decimal places. 5 thousand c. What is the value of GCC to TransWorld? Do not round intermediate calculations. Enter your answer in thousands of dollars. For example, an answer of $145.2 thousands should be entered as 145.2, not 145,200. Round your answer to two decimal places. 5 thousand Merger Analysis Target's Post-Merger Data: Net sales Selling and administrative expense Interest Tax rate after merger Cost of goods sold as a \% of sales Target's debt ratio after merger Beta after merger, bL Risk-free rate, rRF Market risk premium, RPM Continuing growth rate of CFs available to acquire \begin{tabular}{rrrr} \multicolumn{5}{c}{ (in thousands dollars) } & \multicolumn{1}{l}{\begin{tabular}{l} 2021 \\ \hline 2018 \end{tabular}} & 2019 & \multicolumn{1}{c}{2020} & \multicolumn{1}{c}{20201} \\ \hline 459 & 536 & 571 & 69 \\ 44 & 53 & 63 & 69 \\ 18 & 21 & 24 & 27 \end{tabular} Target's Pre-Merger Data: Target's debt ratio before merger Target's tax rate before merger 40.00% Beta before merger. bL 20.00% Unlevered beta, bu 1.35 0.88