5. Merger analysis - Adjusted present value (APV) approach

Widget Corp., which is considering the acquisition of Global Satellite Corp. (GSC), estimates that acquiring GSC will result in an incremental value for the firm. The analysts involved in the deal have collected the following information from the projected financial statements of the target company:

Data Collected (in millions of dollars)
	Year 1	Year 2	Year 3
EBIT	$13.0	$15.6	$19.5
Interest expense	5.0	5.5	6.0
Debt	35.2	41.6	44.8
Total net operating capital	107.1	109.2	111.3

Global Satellite Corp. (GSC) is a publicly traded company, and its market-determined pre-merger beta is 1.00. You also have the following information about the company and the projected statements:

	GSC currently has a $38.00 million market value of equity and $24.70 million in debt.
	The risk-free rate is 3.5%, there is a 5.60% market risk premium, and the Capital Asset Pricing Model produces a pre-merger required rate of return on equity rsLsL of 9.10%.
	GSCs cost of debt is 5.50% at a tax rate of 30%.
	The projections assume that the company will have a post-horizon growth rate of 5.50%.
	Current total net operating capital is $104.0, and the sum of existing debt and debt required to maintain a constant capital structure at the time of acquisition is $32 million.
	The firm does not have any nonoperating assets such as marketable securities.

Given this information, use the adjusted present value (APV) approach to calculate the following values involved in merger analysis. (Note: Only round intermediate calculations when entering them as a final answer.)

	Value
Unlevered cost of equity
Horizon value of unlevered cash flows
Horizon value of tax shield
Unlevered value of operations
Value of tax shield
Value of operations

Thus, the total value of GSCs equity is .