QUESTION 2 Flagstaff Enterprises expected to have free cash flow in the coming year of 58 million, and this free cash flow is expected to grow at a rate of 3% per year thereafter. Flagstaff has an equity cost of capital of 13%, a debt cost of capital of 7%, and it is in the 35% corporate tax bracket. If Flagstaff currently maintains a 5 debt to equity ratio, then Flagstaff's after-tax WACC is closest to: O A. 10.25% OB. 8.75% O C. 9.55% O D.9.50% QUESTION 3 Rearden Metal has earnings per share of $2. It has 10 million shares outstanding and is trading at $20 per share. Rearden Metal is thinking of buying Associated Steel, which has earnings per share of $1.25, 4 million shares outstanding, and a price per share of $15. Rearden Metal will pay for Associated Steel by issuing new shares. There are no expected synergies from the transaction. If Rearden offers an exchange ratio such that, at current pre-announcement share prices for both firms, the offer represents a 20% premium to buy Associated Steel, then the price per share of the Rearden immediately after the announcement will be closest to: O A. $17.20 O B. $16.00 O C. $18.60 O D. $19.10