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Suppose that Rose Industries is considering the acquisition of another firm in its industry. The acquisition is expected to increase Rose's free cash flow by
Suppose that Rose Industries is considering the acquisition of another firm in its industry. The acquisition is expected to increase Rose's free cash flow by $5.5 million the first year, and this contribution is expected to grow at a rate of 3% every year thereafter. Rose currently maintains a debt to equity ratio of 1, its corporate tax rate is 21%, its cost of debt is 6%, and its cost of equity is 10%. Rose Industries will maintain a constant debt-equity ratio for the acquisition. Given that Rose issues new debt of $55 million initially to fund the acquisition, the total value of this acquisition using the APV method is closest to: Select one: o a. $142 million. o b. $96 million. O c. $110 million. O d. $124 million
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