You have been asked to evaluate a potential acquisition of

You have been asked to evaluate a potential acquisition of a smaller privately owned competitor. The acquisition candidate produces an EBITDA of 10% of your current EBITDA and is offered to your firm at a price of multiple of 8 times EBITDA. Assume the following:

• Current debt costs you 8% and you can raise additional debt at this rate today. The loan is to be amortized over 7 years.
• Current return on equity is 15%
• Current WACC is 10%
• Tax rate is 30% (constant)
• 80% of the purchase price is considered depreciable assets – to be depreciated over ten years on a straight-line basis with no residual values.
• Residual value for this operation is to be 2x current EBITDA in year ten.

Assume an EBITDA of $22,511.10 million for the current firm.