Deerfield Computing is considering acquiring Lakeshore Devices Inc. by using cash reserves. You are advising Deerfield Computing of the amount that the company should pay. Lakeshore Devices Inc.’s cost of equity is 15% (levered) and 12.54% (unlevered); it is financed 65% by common equity and the remainder by debt at a cost of 5.5%. Lakeshore Devices Inc.’s tax rate is 35%. Below is a 4-year forecast prepared by Deerfield regarding Lakeshore Devices Inc.’s future free cash flows, interest expense, and new debt. After Year 4, growth is -----?

Answer rating: 100% (QA)

The cost of equity is the rate of return that investors expect to earn on their inv... View the full answer