ABC is considering purchasing a smaller chain, XYZ software. ABCs financial

analysts project that the merger will result in incremental net cash flows of $4.5

million in Year 1, $6.5 million in Year 2, $8.5 million in Year 3, and $14.5

million in year 4. Interest tax savings after the merger are

estimated to be $1.5 million for each of the next 4 years. The expected cost of capital will be 9.8%,

and the company expects to experience a normal growth of 5%

starting at the beginning of the fifth year. XYZs outstanding debt is estimated to be $35

million, and the post merger beta is estimated to be 1.45. The risk free rate is 3.5

percent, and the market returns are 9 percent. What is the value of XYZ Software

to ABC software? Please show work !