Suppose that Rose Industries is considering the acquisition of another firm in its industry for $100 million. The acquisition is expected to increase Rose's free cash flow by $5 million the first year, and this contribution us expected to grow at a rate of 3% every year thereafter. Rose currently maintains a debt to equity ratio of 1, its marginal tax rate is 40%, its cost of debt rD is 6%, and its cost of equity rE is 10%. Rose Industries will maintain a constant debt-equity ratio for the acquisition. Find:

a. Rose's unlevered cost of capital.

b. The unlevered value of Rose's acquisition

c. the present value of the interest tax shield for this acquisition

For a,

Can I use

Re = Ra + D/E (Ra - Rd)(1-T) to calculate Ra?

For c,

Can I use

PV of tax shield = (Total Debt x Rd x Tax rate) / Rd? Someone use (Total Debt x Rd x Tax rate) / (Ra - Growth rate) as the discount rate. I don't understand why. Please explain.