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Coffee Inc. will acquire another firm. This will increase their FCF by $5 million at...

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Accounting

Coffee Inc. will acquire another firm. This will increase their FCF by $5 million at the end of the first year, and this contribution is expected to grow at a rate of 2.8% every year in perpetuity. Coffee currently maintains a debt-to-value ratio of 0.5, its marginal tax rate is 40%, its (before-tax) cost of debt is 6%, and rE is 10%. Coffee will maintain a constant debt-to-value ratio of 0.5. Thus use WACC method. a. rU? b. VU? c. Assume the acquisition is financed with $62.5 million in new debt initially. What is the PV of all the interest tax shields? Find the value using APV.

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