Suppose the after-tax free cash flows for a proposed acquisition are $12/year in perpetuity and that it was deemed that the appropriate WACC should be based on a capital structure of 30 percent debt and 70 percent equity, with the debt at 8 percent interest, a beta (appropriately adjusted) of 1.5, a risk-free rate of 5 percent and a corresponding market risk premium of 7 percent.

1. What is the cost of equity under CAPM? 2. What is the appropriate WACC for this opportunity? 3. What would be the value of the acquisition?