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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:

Total Factory Overhead Cost Variance

The difference between the actual factory overhead costs incurred and the overhead costs that were expected or budgeted for a period.

Fixed Factory Overhead

The constant, recurring costs associated with operating a manufacturing facility, excluding variable costs such as direct labor and materials.

Volume Variance

The difference between the budgeted amount and the actual amount of goods sold, often analyzed to assess performance.

Volume Variance

A measure used in budgeting and financial analysis to quantify the difference between planned and actual volumes of production or sales.