Question 7 (10 marks) Ellianz is considering the acquisition of another firm in its industry. The acquisition is expected to increase Ellianz free cash flow by $6 million the first year and this contribution is expected to grow at a rate of 5% per year from then on. Ellianz has negotiated a purchase price of $350 million. Its cost of equity is 12.8% and its cost of debt is 6%. The corporate tax rate is 30%. After the transaction, Ellianz will adjust its capital structure to maintain its current debt-equity ratio of 3 a. If the acquisition has similar risk to the rest of Ellianz, what is the value and the NPV of this deal? Calculate this using the WACC method. (4 marks) b. How much debt must Ellianz use to finance the acquisition and still maintain its debt- equity ratio? How much of the acquisition cost must be financed with equity? (2 marks) c. Compute the value and the NPV of the acquisition using the APV method, assuming Ellianz will maintain a constant debt-equity ratio for the acquisition. (4 marks)