ABC is considering a merger with EMC. ABC is a publicly traded company and its current...

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ABC is considering a merger with EMC. ABC is a publicly traded company and its current beta is 1.3. EMC has had an average tax rate of 20% for the last few years and has a debt ratio of 25%. IF the acquisition is made EMC will operate as a separate, but wholly owned subsidiary of ABC. ABC has a tax rate of 35% and taxes would be paid on consolidated basis. ABC will also increase its debt capitalization in EMC to 40% which would increase the post-merger beta to 1.47. ABC acquisition department estimates that if acquired, EMC would have the following net cash flows Year 1 2 3 4 5 and beyond Net Cash Flows 1.30 1.50 1.75 2.00 Constant growth rate at 6% The cash flows include all acquisition effect. ABC's cost of Equity is 14%, its beta is 1 and the cost of debt is 10%. The risk free rate is 8% and the market risk premium is 6% EMC has 1.2 million shares outstanding. What is the maximum price per share that ABC should offer for EMC? A) $12.4 B) $4.12. C)$14.16 D) $6.67 E) $16.67 ABC is considering a merger with EMC. ABC is a publicly traded company and its current beta is 1.3. EMC has had an average tax rate of 20% for the last few years and has a debt ratio of 25%. IF the acquisition is made EMC will operate as a separate, but wholly owned subsidiary of ABC. ABC has a tax rate of 35% and taxes would be paid on consolidated basis. ABC will also increase its debt capitalization in EMC to 40% which would increase the post-merger beta to 1.47. ABC acquisition department estimates that if acquired, EMC would have the following net cash flows Year 1 2 3 4 5 and beyond Net Cash Flows 1.30 1.50 1.75 2.00 Constant growth rate at 6% The cash flows include all acquisition effect. ABC's cost of Equity is 14%, its beta is 1 and the cost of debt is 10%. The risk free rate is 8% and the market risk premium is 6% EMC has 1.2 million shares outstanding. What is the maximum price per share that ABC should offer for EMC? A) $12.4 B) $4.12. C)$14.16 D) $6.67 E) $16.67