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Tundra Corporation is interested in acquiring Cantrell Corporation. Cantrell has 20 million shares outstanding and a target capital structure consisting of 30 percent debt and 70 percent equity. Cantrell's debt interest rate is 8 percent. Assume that the risk-free rate of interest is 2 percent and the market risk premium is 8 percent. Cantrell's free cash flow (FCF0) is $7 million per year and is expected to grow at a constant rate of 6 percent a year; its beta is 1.1. Cantrell has $5 million in debt. The tax rate for both companies is 30 percent.

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Financial Management, Finance

Category:- Financial Management
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