ABC HealthTech (ABC) is contemplating acquisition of ZTech Education (for a cash price of $180,000. ABC currently has high financial leverage and therefore has a cost of capital of 14%. As a result of acquiring ZTech, which is financed entirely with equity, the firm expects its financial leverage to be reduced and its cost of capital to drop to 11%. The acquisition of ZTech is expected to increase ABCs cash inflows by $20,000 per year for the first 3 years and by $30,000 per year for the following 12 years.

a) Determine whether the proposed cash acquisition is desirable. Explain your answer

b) If the firms financial leverage would actually remain unchanged as a result of the proposed acquisition, would this alter your recommendation in part 1? Support your answer with numerical data