Hiland Airways is planning to acquire Interstate Carriers. Interstate's cost of equity is 10%; it is financed 75% by common equity and the remainder by debt at 5%. Interstate's tax rate is 30%. Below is a 4-year forecast prepared by Hiland regarding Interstate's future free cash flows, interest expense, and new debt. After Year 4, growth is expected to be 3.5%. The capital structure and cost of debt is not expected to change.

What is the maximum amount that Hiland Airways should pay for Interstate Carriers? 

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Year 2 Year 3 Year 1 Year 4 Free cash flows $1,000,000 $1,140,000 $1,280,000 $1,420,000 Interest expense New debt 85,000 92,500 100,500 109,000 $1,700,000 160,000 170,000 180,000 150,000