XYZ corporation wants to purchase ABC and it would cost XYZ $105 billion to make the acquisition. In addition, XYZ would have to spend an additional $7.5 billion in issuing new debt and equity to finance the purchase. The company projects that in 1 year the purchase will generate $6.5 billion cash inflow. After that, the cash inflows will grow at a rate of 3% forever.

ABC's business is in a different industry and to calculate the NPV of the acquisition, XYZ must first calculate the WACC. ABC has a beta of 2. The risk-free rate in the economy is 0.5% and the market risk premium is 3%. ABC's cost of debt is 2%. In addition, ABC finances itself with 70% equity financing and 30% debt financing. Based on this information, answer the following questions.

TRUE OR FALSE

1. The cost of equity for ABC is 6.5%

2. The WACC for ABC is 6.5%

3. Which of the following is approximately the correct net present value (NPV) of XYZ's purchase of ABC?

A. $190 billion

B. $100.5 billion

C. $271 billion

D. $430 billion