A firm is considering acquiring a competitor. The firm plans on offering $200 million for the competitor. The firm will need to issue new debt and equity to finance the acquisition. You estimate the issuance costs to be $10 million. The acquisition will generate an incremental free cash flow of $25 million in the first year and this cash flow is expected to grow at an annual rate of 3% forever. If the firm's WACC is 13%, what is the value of this project?
A) $40 million
B) $60 million
C) $50 million
D) $70 million
Correct Answer:
Verified
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