First question (60%). Free Cash Flow valuation. Please compute the net present value (NPV) of the acquisition.

The Austin Corporation is viewed as a possible takeover target by Texas, Inc. Currently Austin uses 50 percent debt in its capital structure, but Texas plans to increase the debt ratio to 70 percent if the acquisition is consummated. After-tax cost of debt capital for Austin is estimated to be 15 percent, which holds constant under either capital structure. The cost of equity of Austin after acquisition is expected to be 25 percent. The current market value of Austins outstanding debt is $ 10 million, all of which will be assumed by Texas. Texas intends to pay $ 100 million in cash and common stock for all Austins stock in addition to assuming all Austins debt. Currently, the market price of Austins common stock is $ 80 million.

Selected items from Austin's financial data are as follows: 2021 2022 2023 2024 Thereafter (millions) Net Sales $230.0 $264.5 $304.2 $349.8 $402.3 Administrative and selling expenses (S.G.A.) $25.0 $25.0 $25.0 $30.0 $30.0 Depreciation $15.0 $17.0 $18.0 $23.0 $30.0 Capital expenditure $20 $22 (C.A.P.E.X.) $25 $28 $30 In addition, the cost of goods sold (C.O.G.S.) runs 70 percent of sales and the marginal tax rate is 25 percent