FFM is a semi-conductor manufacturing firm with three divisions. These are SOC Tools (SOC), which constitutes 40 percent of the assets of the firm, Digital Equipment (DE), which constitutes 25 percent of the assets and Foundry Equipment (FE), which constitutes the remaining 35 percent of the assets. The unlevered (asset) betas of the three divisions (defined as the beta of the division if it were independent and 100% equity financed) are A,SOC = 1.5, A,DE =0.7 and A,FE = 0.5. FFMs debt-to-equity ratio, B/S, is 3/7 and the corporate tax rate, tc, is 34%. The expected return on the market portfolio, rm, is 13 %. FFM can borrow at the risk free interest rate, rf, of 4%. 1. What is the discount rate, rA, which FFM should use for assessing projects in the SOC Tools division, the Digital Equipment division and the Foundry Equipment division? 2. Calculate the expected return on the equity, rS, of FFM? 3. FFM is thinking of acquiring TTT Corporation, which has 40 percent of its assets in the SOC Toolss industry and 60 percent in the Foundry Equipments industry. What is FFMs opportunity cost of capital, rwacc, of the TTT division, if FFM acquires TTTs assets? Assume that FFMs capital structure stays the same after the acquisition.