QUESTION 11: a) Click Technologies is considering the acquisition of another firm in its industry. The acquisition is expected to increase Click's free cash flow by 8 million the first year, and this cash flow is expected to grow at a rate of 3.5% per year from then on. Click has negotiated a purchase price of 170 million. Click currently maintains a debt-to-equity ratio of 0.5, its corporate tax rate is 35%, its cost of debt is 6%, and its cost of equity is 9.5%. Click will maintain a constant debt-to-equity ratio for the acquisition. REQUIRED: i) How much debt must Click use to finance the acquisition? (3 marks) ii) What is the present value of the interest tax shield provided by Click's acquisition deal? (3 marks) iii) Calculate the NPV of the acquisition using the flow-to-equity method. (4 marks) b) Suppose that Rainbow Systems has no debt initially (i.e., it is an all equity financed company). Rainbow has a cost of equity of 11% and a current market capitalization of 92 million. The company's free cash flows are expected to grow at 2% per year forever. Rainbow's corporate tax rate is 21%. The management of the company has decided to add debt for the first time to its capital structure and to maintain a 50% debt-to-value ratio going forward. If Rainbow's cost of debt is 5%, what will Rainbow's levered value be