You, CFO of Wharton Inc., have been asked to assess a potential buyout of competitor, Rotman Inc. The Rotman Inc. has the after-tax operating income of $12 million. It is expected to generate this operating income forever (with no growth). The cost of equity for this firm is 20% and it has no debt outstanding. a) Assume that as an acquiring firm, you are in a much safer business and have a cost of equity of 10%. What is the value of the target firm to you? Justify your answer. b) Assume as an acquirer that you have access to cheap debt (at 4%) and that you plan to fund half the acquisition with debt. How much would you be willing to pay for the target firm? Justify your answer.