Depreciation$-$generated funds would be used to replace worn$-$out equipment, so they would not be available to Pit Row Auto's shareholders. Southern Auto will require reinvestment of the $40$ percent of its NOPAT to finance this new division's future growth, which implies that $40$ percent of its NOPAT would be retained in Southern Auto as net investment in operating capital, and hence not available to Pit Row Auto's shareholders.

Southern is currently financed with $30\%$ debt at $10\%$ interest rate. The acquisition would be made immediately, if it is undertaken and Southern would retain its current $$150$ million in debt and issue new debt in order to continue targeting a $30\%$ debt level. The interest rate will remain the same. Southern Auto's premerger beta is estimated to be $1\mathrm{.}50$ and its post$-$merger tax rate would be $40$ percent. The risk$-$free rate is $8$ percent, and the market risk premium is $4$ percent.

Southern Auto has $10$ million shares outstanding. Southern Auto's current price is $$35.$

$12.$ What is the unleveled cost of equity to use in this merger analysis?

a$.12\mathrm{.}8\%$

b$.13\mathrm{.}3\%$

c$.14\mathrm{.}0\%$

d$.15\mathrm{.}2\%$

e$.16\mathrm{.}4\%$

$13.$ What is the value of Southern Auto to Pit Row Auto's shareholders?

a$.$ $$254\mathrm{.}25$ million

b$.$ $$350\mathrm{.}88$ million

c$.$ $$526\mathrm{.}28$ million

d$.$ $$719\mathrm{.}40$ million

e$.$ $$956\mathrm{.}28$ million

$14.$ What is the maximum price per share that Pit Row Auto should offer without hurting the wealth of Pit Row Auto's current shareholders?

a$.$ $$25\mathrm{.}42$

b$.$ $$35\mathrm{.}08$

c$.$ $$52\mathrm{.}63$

d$.$ $$71\mathrm{.}94$

e$.$ $$95\mathrm{.}63$

$15.$ If Pit Row Auto is able to close the deal at a price of $$500$ million by paying cash. Suppose the total value of Pit Row Auto's equity is equal to $$1,000$ million, and it has $10$ million shares outstanding. What is the price per share of the combined firm after merger?

a$.$ $$50$

b$.$ $$71\mathrm{.}94$

c$.$ $$100$

d$.$ $$105\mathrm{.}65$

$$

$\backslash$table$[[,2023,2024,2025,2026],[$Net Sales,$$450,$$$518,$$$555,$$$600$