1. You have been given the job of evaluating the following merger candidate.You have collected the following cash flow for the acquisition candidate for the proposed merger (in millions):

Year 1 2 3 4 5__

Cash flows now for candidate 9085205665180

Additional cash flows with merger 6090100225250

Total cash flows with synergy150175305890430

Risk free rate of return 3.0%

Beta for this project (the company after merging)1.2

Market risk premium 5.5%

Pre-tax cost of debt4.2%

Marginal tax rate24%

Number of shares outstanding for the target company (millions)15

Current market price per share for the target company$40

Percentage of the acquisition financed with debt 60%

Percentage of the acquisition financed with common equity40%

What is the after-tax cost of debt?

What is the after-tax cost of common equity?

What is the weighted average cost of capital for this acquisition candidate?

What is the maximum price per share you are willing to pay for this candidate?

Based on the numbers above, would you pursue this candidate?