Use the Information for the Question(s)below

question 69

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.
-The Free Cash Flow-to-Equity (FCFE) for the acquisition in year 1 is closest to:

• A)$4.1 million.
• B)$6.5 million.
• C)$8.3 million.
• D)$6.8 million.

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Definitions:

Corresponding Latitudes

Locations across the globe that share the same distance north or south of the Equator.

Tundra

A cold, treeless biome found in the Arctic and atop mountains, where the climate is characterized by very low temperatures, short growing seasons, and permafrost.

Permafrost

Permanently frozen subsoil characteristic of frigid areas such as the tundra.

Growing Season

The growing season is the period of the year when weather conditions are favorable for plant growth, typically characterized by sufficient warmth and moisture.