(Answered) Suppose the after-tax free cash flows for a proposed

Finance

Suppose the after-tax free cash flows for a proposed acquisition are $11.55/year in perpetuity and that it was deemed that the appropriate WACC should be based on a capital structure of 25 percent debt and 75 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.

a) What is the cost of equity under CAPM?

b) What is the appropriate WACC for this opportunity?

c) What would be the value of the acquisition?

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