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1) ABC Inc. is thinking of obtaining Verch Inc. ABC expects Verch's NOPAT to be= $90 million the 1st year, with no interest expense and no net new investment in operating capital. For 2nd year, Verch is expected to have NOPAT of $200 million. As well, in 2nd year only, Verch will require= $180 million of net new investment in operating capital. Verch's marginal tax rate is= 25%. After 2nd year, free cash flows and tax shields from Verch to ABC will both grow at the steady rate of 3%, ABC has found out that Verch's cost of equity is 35%, and Verch presently has no debt outstanding. Suppose that all cash flows happen at end of year, ABC should pay $26 million to obtain Verch. Determine the NPV of the proposed acquisition?

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