Anacott Steel is acquiring Terafly Incorporated. Terafly is expected to provide

Question

Anacott Steel is acquiring Terafly Incorporated. Terafly is expected to provide Anacott with operating cash flows of $12, $21, $16, and $9 million over the next four years, respectively. In addition, the terminal value of all remaining cash flows at the end of Year 4 is estimated at $18 million. The merger will cost Anacott $40.0 million today. If the value of the merger is estimated at $9.00 per share and Anacott has 1,000,000 shares outstanding, what equity discount rate must the firm be using to value this acquisition?



a)21.15%
b)14.16%
c)17.92%
d)16.49%
e)17.20%

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Explanation / Answer

17.92%

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