Question
Use the information for the question(s) below. Suppose that Goldfinch Airline is considering the acquisition of another firm in its industry for $100 million. The
Use the information for the question(s) below.Suppose that Goldfinch Airline is considering the acquisition of another firm in its industry for $100 million. The acquisition is expected to increase Goldfinch's free cash flow by $5 million the first year, and this contribution is expected to grow at a rate of 3% every year thereafter. Goldfinch currently maintains a debt to equity ratio of 1, its corporate tax rate is 21%, its cost of debt rD is 6%, and its cost of equity rE is 10%. Goldfinch Airline will maintain a constant debt-equity ratio for the acquisition. The Free Cash Flow-to-Equity (FCFE) for the acquisition in year 1 is closest to _______.
- A. $6.5 million
- B. $8.3 million
- C. $4.1 million
- D. $6.8 million
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