$(5$ points$)$ Explain why the cost of equity is used as the discount rate.

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$(5$ points$)$ Explain why the retained earnings are subtracted to arrive at the appropriate cash flow.

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$(10$ points$)$ Explain why we de$-$lever and re$-$lever the bL$.$

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$(5$ points$)$ What tax rate do we use to derive the cash flows?$$ Why?

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$(10$ points$)$ List at least three weaknesses of the analysis.$$

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$(5$ points$)$ Why is the covariance of debt and the market equal to zero?$$ What impact does this have on beta?

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$2.(10$ points$)$ Explain how having only $50\%$ of M&As succeed a means of justifying the efficient market hypothesis.