Use the Information for the Question(s)below

question 45

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.
-Rose's unlevered cost of capital is closest to:

• A)8.0%.
• B)7.5%.
• C)7.0%.
• D)9.0%.

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Definitions:

Generalized Anxiety Disorder

A chronic condition marked by excessive, uncontrollable worry about everyday matters.

Dissociative Identity Disorder

A psychological condition characterized by the presence of two or more distinct personality states that control behavior in different contexts.

Obsessive-compulsive Disorder

A mental disorder characterized by unwanted and intrusive thoughts (obsessions) and repetitive behaviors or mental acts (compulsions) that an individual feels driven to perform.

Post-traumatic Stress Disorder

A disorder related to mental health, sparked by involvement in or witnessing of an event causing extreme fear, defined by involuntary recollection, terrifying nightmares, and deep anxiety.