Business
Business, 21.05.2020 00:13, raquelle66

A regional restaurant chain, CoCo's, is considering purchasing a smaller chain, AJ's, which is currently financed using 20% debt at a cost of 8%. CoCo's analysts project that the merger will result in incremental free cash flows and interest tax savings of $2 million in Year 1, $4 million in Year 2, $5 million in Year 3, and $117 million in Year 4. (The Year 4 cash flow includes a horizon value of $107 million.) The acquisition would be made immediately, if it is to be undertaken. AJ's pre-merger beta is 2.0, and its post-merger tax rate would be 34%. The risk-free rate is 8%, and the market risk premium is 4%. What is the appropriate rate for use in discounting the free cash flows and the interest tax savings

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