Merger analysis $-$ Adjusted present value $($APV$)$ approach

Wizard Inc., which is considering the acquisition of Global Satellite Corp. $($GSC$),$ estimates that acquiring GSC will result in an incremental value for

the firm. The analysts involved in the deal have collected the following information from the projected financial statements of the target company:

Global Satellite Corp. $($GSC$)$ is a publicly traded company, and its market$-$determined pre$-$merger beta is $1\mathrm{.}00.$ You also have the following information

about the company and the projected statements:

GSC currently has a $$28\mathrm{.}00$ million market value of equity and $$18\mathrm{.}20$ million in debt.

The risk$-$free rate is $5\%,$ there is a $7\mathrm{.}10\%$ market risk premium, and the Capital Asset Pricing Model produces a pre$-$merger required

rate of return on equity $r_{sL}$ of $12\mathrm{.}10\%.$

GSC$\text{'}$s cost of debt is $7\mathrm{.}00\%$ at a tax rate of $40\%.$

The projections assume that the company will have a post$-$horizon growth rate of $6\mathrm{.}00\%.$

Current total net operating capital is $$110\mathrm{.}0,$ and the sum of existing debt and debt required to maintain a constant capital struct

at the time of acquisition is $$30$ million.

The firm does not have any nonoperating assets such as marketable securities$.$

Given this information, use the adjusted present value $($APV$)$ approach to calculate the following values involved in merger analysis. $($Note: Only

round intermediate calculations when entering them as a final answer.$)$

Value

Unlevered cost of equity

Horizon value of unlevered cash flows

Horizon value of tax shield

Unlevered value of operations

Value of tax shield

Value of operations

Thus, the total value of GSC$\text{'}$s equity is