Global Industries Inc. (GII), a US conglomerate, has a debt-to-equity ratio of 0.3 and a WACC of 10%. At this level of leverage, GII's debt is risk-free and it constantly rebalance its debt to maintain a constant debt-to-equity ratio. Assume CAPM holds, the risk-free interest rate is 4.0% and the risk-premium on the market portfolio is 5%. GII faces a corporate tax rate of 30% . GII is considering acquiring a new business, which has a market beta of 1.2. The new business yields an annual expected after-tax cash flow of 10 million forever, starting next year (year 1). The acquisition cost is 102.4 million. Suppose that GII finances the acquisition by all equity, e.g., by issuing equity in the new business. Suppose that GII can finance the acquisition both by its equity and by issuing debt against the new business's asset (cash flows). The new business can support a debt level at 55% of its asset value without incurring any default risk. Please help to answer the incorrect ones. Don't copy from others!!!!! Urgent! (d) (e) (f)

Global Industries Inc. (GII), a US conglomerate, has a debt-to-equity ratio of 0.3 and a WACC of 10%. At this level of leverage, Gll's debt is risk-free and it constantly rebalance its debt to maintain a constant debt-to-equity ratio. Assume CAPM holds, the risk-free interest rate is 4.0% and the risk-premium on the market portfolio is 5%. Gll faces a corporate tax rate of 30%. Gll is considering acquiring a new business, which has a market beta of 1.2 . The new business yields an annual expected after-tax cash flow of $10 million forever, starting next year (year 1 ). The acquisition cost is $102.4 million. Suppose that GII finances the acquisition by all equity, e.g., by issuing equity in the new business. (a) What is the cost of capital for the new business (its asset)? % (b) What is the present value of the new business's asset, i.e., the PV of its future cash flows. million dollars (c) What is the NPV for acquiring this new business, with 100% equity financing? million dollars Suppose that GII can finance the acquisition both by its equity and by issuing debt against the new business's asset (cash flows). The new business can support a debt level at 55% of its asset value without incurring any default risk. (d) Suppose Gll constantly maintains its debt level at this ratio. What is the present value of the tax shield generated by the leverage? million dollars x (e) What is the present value of this business under the new financing strategy? million dollars x (f) What is the NPV of the new business? million dollars x