First question (60%). Free Cash Flow valuation. Please compute the net present value (NPV) of the acquisition. The Los Angeles Corporation is viewed as a possible takeover target by California, Inc. Currently Los Angeles uses 10 percent debt in its capital structure, but California plans to increase the debt ratio to 50 percent if the acquisition is consummated. After-tax cost of debt capital for Los Angeles is estimated to be 15 percent, which holds constant under either capital structure. The cost of equity of Los Angeles after acquisition is expected to be 25 percent. The current market value of Los Angeles's outstanding debt is $ 20 million, all of which will be assumed by California. California intends to pay $ 80 million in cash and common stock for all Los Angeles's stock in addition to assuming all Los Angeles's debt. Currently, the market price of Los Angeles's common stock is $ 60 million. Selected items from Los Angeles's financial data are as follows: (millions) 2021 2022 2023 2024 Thereafter Net Sales $140.0 $161.0 $185.2 $212.9 $244.9 Administrative and selling expenses (S.G.A.) $10.0 $10.0 $15.0 $15.0 $20.0 Depreciation $5.0 $8.0 $10.0 $12.0 $15.0 $20 $22 $25 Capital expenditure (C.A.P.E.X.) $28 $30 In addition, the cost of goods sold (C.O.G.S.) runs 65 percent of sales and the marginal tax rate is 25 percent