(20-6) Valuation: Red Valley Breweries is considering an acquisition of Flagg Markets. Flagg currently has a cost of equity of 10 per cent; 25 per cent of its financing is in the form of 6 per cent debt, and the rest is in ordinary equity. Its federal plus state tax rate is 40 per cent. After the acquisition, Red Valley expects Flagg to have the following FCFs and interest payments for the next 3 years (in millions): FCF Year 1 10.00 28.00 Year 2 20.00 24.00 Year 3 25.00 20.28 Interest expense After this, the free cash flows areexpected to grow at a constant rate of 5 percent, and the capital structure will stabilize at 35 per cent debt with an interest rate of 7 per cent. a. What is Flagg's unlevered cost of equity? What are its levered cost of equity and cost of capital for the post-horizon period? b. Using the adjusted present value approach, what is Flagg's value of operations to Red Valley? (20-6) Valuation: Red Valley Breweries is considering an acquisition of Flagg Markets. Flagg currently has a cost of equity of 10 per cent; 25 per cent of its financing is in the form of 6 per cent debt, and the rest is in ordinary equity. Its federal plus state tax rate is 40 per cent. After the acquisition, Red Valley expects Flagg to have the following FCFs and interest payments for the next 3 years (in millions): FCF Year 1 10.00 28.00 Year 2 20.00 24.00 Year 3 25.00 20.28 Interest expense After this, the free cash flows areexpected to grow at a constant rate of 5 percent, and the capital structure will stabilize at 35 per cent debt with an interest rate of 7 per cent. a. What is Flagg's unlevered cost of equity? What are its levered cost of equity and cost of capital for the post-horizon period? b. Using the adjusted present value approach, what is Flagg's value of operations to Red Valley