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6. Merger analysis - Free cash flow to equity (FCFE) approach Washington Company is considering an acquisition of Rapid Routes Logistics. Washington Company estimates that acquiring Rapid Routes will result in Incremental value for the firm. The analysts involved in the deal have collected the following information from the projected financial statements of the target company: Rapid Routes is a publicly traded company, and its market-determined pre-merger beta is 1.20. You aiso have the following information about the company and the projected statements: - Rapid Routes currently has a $10,00 million market value of equity and $6.50 million in debt. - The risk-free rate is 3.5% with a 5.60% markot risk premium, and the Capital Assot Pricing Model produces a pre-merger required rate of retum on equity rst of 10.22%. - Rapid Routes's cost of debt is 5.50% at a tax rate of 35%. - The projections assume that the company will have a post-honizon growth rate of 4.50%. - Current total net operating capital is $106.0 million, and the sum of existing debt and debt required to maintain a constant capital structure at the time of acquisition is $27 million. - The firm has no nonoperating assets, such as marketable securities. With the given information, use the free cash flow to equity (FCFE) approach to calculate the following values invaived in the merger analysis. (Note: Round your answer to two decimal places, but do not round intermediate calculations.) The estimated value of Rapid Routes's operations after the merger is than the market value of Rapid Routes's equity. This means that the wealth of Rapid Routes's shareholders will If it merges with Washington rather than remaining as a stand-alone corporation. True or false: The horizon value in the FCFE approach is different from the horizon value in the adjusted present value (APV) approach. The horizon value in the FCFE approach is only for equity, whereas the horizon value in the APV approach is for the total value of operations. True False

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