Use the Information for the Question(s)below

question 11

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 0 is closest to:

• A)$5 million.
• B)$100 million.
• C)-$100 million.
• D)-$50 million.

---

Definitions:

Forecast Including Trend

A predictive analysis that accounts for historical data and identifies future patterns, trends, and likely outcomes.

Smoothing Constants

Parameters used in exponential smoothing methods for forecasting that determine the weight given to the most recent observation.

Actual Values

The real, measured values obtained from data collection as opposed to predicted or estimated figures.