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:

Actual Self

Represents an individual's perception of themselves as they are, rather than how they wish to be.

Overjustification Effect

In the absence of obvious external determinants of our behaviour, we assume that we freely choose the behaviour because we enjoy it.

BIRGing

Basking in Reflected Glory; that is, name-dropping to link yourself with desirable people or groups and thus improve other people’s impression of you.

Self-schemas

Represents cognitive structures derived from past experience that help organize and guide an individual's processing of information about themselves.