Firm A (the acquirer)is going to acquire firm B( the target)

for the target firm:

There are 200 thousand shares outstanding. The market value of equity is currently $3,500 thousand and the market value of outstanding debt is $450 thousand (assume that the share price, the value of equity, and the value of debt are given at the valuation date, i.e. end of December 2019). The firm faces the (marginal) tax rate of 40%. The asset beta of the target (the beta of the same but all-equity firm) is 1.15.

The target leverage (D/V) after the deal is completed is expected to be 25% (applies to both the target and the synergies). The borrowing rate (cost of capital) is 8% and the Treasury bond rate (risk-free rate) is 3%. The market risk premium is 5%.

for the acquirer firm:

The firm faces the (marginal) tax rate of 40%. The asset beta of the acquirer (the beta of the same but all-equity firm) is 0.8.

questions:

1.Calculate the cost of assets (unlevered equity return, i.e. cost of equity of the same but all-equity firm) for the target using CAPM

2.Calculate the cost of equity (levered equity return) for the target

3.Calculate the weighted average cost of capital (WACC) for the target