QUESTION $4$

Questions $2-6$ are based on the following description about Bethlehema Steel Company.

Bethlehema Steel is a publicly traded steel company with $$60$ million in outstanding debt and $$40$ million in market value of equity. Assuming the

firm is correctly priced. The firm's cost capital currently is $12\%$ and is expected to generate $$16$ million in EBIT$(1-$T$)$ next year. The firm is expected

to grow in stable growth at $4\%$ a year in perpetuity. To support the growth, the firm needs to invest $50\%$ of its EBIT$(1-$T$)$ in fixed assets and working

capital. You believe if you acquire the control of the firm, you can sell idle assets for $$40$ million and lower the cost of capital to $10\%($Plan A$).$

Suppose you consider an alternative way $($Plan B$)$ to deploy the $$40$ mil proceeds from selling idle assets. Instead of paying down debt, you can

redeploy the assets to more productive investments, which will increase the expected EBIT$(1-$T$)$ next year to $$25$ million. As a result, the expected

growth rate will increase to $5\%.$ Required Reinvestments in Fixed assets and working capital remain at $50\%$ of EBIT$(1-$T$).$ What would be the new

expected FCF of the firm?

a$.12\mathrm{.}5$

b$.25$

C$.14\mathrm{.}2$

d$.29\mathrm{.}4$