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.

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Definitions:

Conditioned Stimulus

A stimulus that, after association with an unconditioned stimulus, comes to trigger a conditioned response.

Little Albert

An early 20th-century experiment in classical conditioning where a young child was conditioned to fear a white rat, showcasing how emotional responses could be conditioned.

White Rat

Traditionally used as a subject in psychological and medical research because of its genetic uniformity and ease of observation.

Classical Conditioning

A training method in which pairing two stimuli repeatedly leads to a response originally produced by the second stimulus now being produced by only the first stimulus.