what is the cost of capital for Ruivo?

Your second task is to advise a local watch manufacturer-Ampe Intl, which is considering acquiring a Ruivo SA, an upstart luxury watchmaker based in Switzerland. Ampe Int'l has 10 million shares outstanding that currently trade at $25 per share. You need to evaluate the proposed transaction and assess its impact on shareholder value. In the current year, Ruivo has revenues of $40 million and total operating expenses (costs) before depreciation of $20 million. Its depreciation expenses are $3 million and capital expenditures are $5 million. You project that revenue will grow at 10% annually for the next two years and 2% annually thereafter. All other value drivers as a percentage of sales are expected to remain constant throughout. The perpetual growth rate in free cash flow is also 2% per year. The firm's overall marginal tax rate (as % of EBIT) is 25%, its debt outstanding has a market value of $45 million and the firm holds $15 million in excess cash. Ruivo's debt is considered risk-free and it has 5 million shares outstanding. Ruivo target leverage ratio is $1 of debt for each $3 of equity. Other comparable industry firms have an asset (unlevered) beta of 1.1, they use $1 of debt for each 2$ of equity and they also pay a marginal tax rate of 25%. The relevant risk-free rate of interest is 3% and the market risk premium is expected to be 7%