suppose that rose industries is considering the acquisition of an10408
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 there after. Rose currently maintains a debt to equity ratio of 1, its marginal tax rate is 40%, 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 1 is closest to: A. $4.7 million B. $6.5 million C. $8.3 million D. $6.8 million
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