Anacott Steel Is Acquiring Terafly Incorporated

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 horizon value of all remaining cash flows at the end of Year 4 is estimated at $18 million.The merger will cost Anacott $45.0 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) 11.63%
B) 12.25%
C) 12.89%
D) 13.57%
E) 14.25%

Correct Answer:

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