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Winnipeg Metals Corporation has β = 1.3. It is interested in buying Kitchener Fasteners Corporation which has β = 1.2. Winnipeg believes that after the acquisition, its β will become 1.25. The expected after-tax earnings from Kitchener will be $3.5 million for the first year, but this figure is expected to increase by 3% per year in future. The expected return on the market is 10%, and the riskless rate is 4%. Find the amount that Winnipeg should spend on this acquisition.

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