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.

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Definitions:

Hofstede Classification

A framework for cross-cultural communication, developed by Geert Hofstede, that analyzes cultural differences through dimensions such as individualism vs. collectivism and power distance.

Assertiveness Cultural

Refers to how cultural norms and values influence the level and acceptance of assertive behavior in interpersonal and professional interactions.

Confrontational

Characterized by or inclined towards direct opposition or conflict.

Regional Clusters

Geographical concentrations of interconnected companies, specialized suppliers, and service providers, which can foster improved productivity and innovation.