Use the Information for the Question(s)below

question 28

Multiple Choice

Use the information for the question(s) below.
Suppose that Rose Industries is considering the acquisition of another firm in its industry for $100 million.The acquisition is expected to increase Rose's free cash flow by $5 million the first year,and this contribution is expected to grow at a rate of 3% every year thereafter.Rose currently maintains a debt to equity ratio of 1,its corporate tax rate is 21%,its cost of debt rD is 6%,and its cost of equity rE is 10%.Rose Industries will maintain a constant debt-equity ratio for the acquisition.
-Given that Rose issues new debt of $50 million initially to fund the acquisition,the present value of the interest tax shield for this acquisition is closest to:

• A)$24 million.
• B)$50 million.
• C)$20 million.
• D)$15 million.

---

Definitions:

Negatively Correlated

Describes a relationship where one variable increases as the other decreases, or vice versa.

Positively Correlated

A linkage between two elements where the elevation of one element correlates with the elevation of the other.

Saturated Fat

A type of dietary fat found in animal products and certain oils, known for raising LDL (bad) cholesterol levels in the blood.

Positively Correlated

A relationship between two variables where they move in the same direction, meaning as one variable increases, the other does as well.