[PLEASE DO NOT BOTHER IF YOU CANT ANSWER THE WHOLE QUESTION]

Firm A plans to acquire Firm B. The acquisition would result in incremental cash flows for Firm A of $10m in each of the first 5 years. Firm A expects to divest Firm B at the end of the fifth year for $100m. The beta for Firm A is 1.1 and this will remain unchanged after the acquisition. The risk free rate, Rf , is 7%, and the expected market rate of return, Rm , is 15%. Firm A is financed by 80% equity and 20% debt and this leverage will remain unchanged after the acquisition. Firm A pays interest of 10% on its debt and this will remain unchanged after the acquisition. a) Disregarding taxes, what is the maximum price that Firm A should pay for Firm B (10 marks) b) Firm A has a stock price of $30 per share and 10 million shares outstanding. If Firm B shareholders are to be paid the maximum price determined in part a) via new stock issue, then how many new shares will need to be issued? (3 marks) c) What will be the post-acquisition price of the stock?