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question 33

Essay

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 total value of this acquisition using the APV method is equal to?

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Definitions:

Liquid

A liquid is a state of matter that is fluid and conforms to the shape of its container but retains a constant volume independent of pressure.

Mercury

A chemical element with symbol Hg and atomic number 80, known for being a liquid metal at room temperature and for its toxicity.

Room Temperature

The ambient temperature of a room, generally considered to be between 20 to 25 degrees Celsius (68 to 77 degrees Fahrenheit).

Sodium Sulfate

An inorganic salt used in detergents, paper manufacturing, and glass production, known chemically as Na2SO4.