Suppose company A, with excess cash is considering the acquisition of a regional company B. Company A estimates of B's earnings potential if it comes under A's management (in millions of dollars). The interest expense listed here includes the interest (1) on B's existing debt, (2) on new debt that A would issue to help finance the acquisition, and (3) on new debt expected to be issued over time to help finance expansion within the new division. The retentions represent earnings that will be reinvested within the B division to help finance its growth Company B currently uses 27.5% debt financing, and it pays federal-plus-state taxes at a 32% rate security analysts estimate B's beta to be 1.17 If the acquisition were to take place. A would increase B's debt ratio to 35%, which would increase B's beta to 1.38. Further, because A is highly profitable, taxes on the consolidated firm would be 40% Depreciation cash flows would have to be reinvested within the division to replace worn-out equipment so they would not be available to A's shareholders. You estimate the risk-free rate to be 3.5% and the market risk premium to be 6.75%. You also estimate that cash flows after 2021 will grow at a constant rate of 4 5% The after tax cost of debt is 6.5%. The table presents estimates of B's data for merger analysis.