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

The Cancun Corporation is viewed as a possible takeover target by Mexico, Inc. Currently Cancun uses 20 percent debt in its capital structure, but Mexico plans to increase the debt ratio to 30 percent if the acquisition is consummated. After-tax cost of debt capital for Cancun is estimated to be 10 percent, which holds constant under either capital structure. The cost of equity of Cancun after acquisition is expected to be 15 percent. The current market value of Cancuns outstanding debt is $ 40 million, all of which will be assumed by Mexico. Mexico a intends to pay $ 80 million in cash and common stock for all Cancuns stock in addition to assuming all Cancuns debt. Currently, the market price of Cancuns common stock is $ 70 million.

Selected items from Cancuns financial data are as follows:

(millions)	2021	2022	2023	2024	Thereafter
Net Sales	$200.0	$220.0	$242.0	$266.2	$292.8
Administrative and selling expenses (S.G.A.)	$25.0	$40.0	$50.0	$55.0	$60.0
Depreciation	$30.0	$30.0	$35.0	$35.0	$40.0
Capital expenditure (C.A.P.E.X.)	$20	$22	$25	$28	$30

In addition, the cost of goods sold (C.O.G.S.) runs 60 percent of sales and the marginal tax rate is 25 percent.