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 $47 million today. If the value of the merger is estimated at $8.00 per share and Anacott has 1,000,000 shares outstanding, what equity discount rate must the firm be using to value this acquisition?
A. 11.88%
B. 10.22%
C. 14.31%
D. 12.77%
E. 12.65%
Answer: D
Business
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