supposed that you have set up a private equity Fund and gathered a number of investors that have provided equity in the amount of 50 million for which they require a cost of equity of 15.9817%.The fund can also obtain an unlimited amount of debt with a cost(before tax savings) of 8%.

As the manager for the fund ,you have set your eyes on a potential target firm for an acquisition,firm A,whose balance sheet,profit and loss statement and other information is presented below (all values in millions and assume perpetuities for profits)

\fBalance Sheet Firm A at time 0 P&L Firm A Fixed Assets Current assets minus cash '3 Taxes @30% - bt Emu-t: .E Total Assets 1120 Cost of equity for the current shareholders of A: 10% interest @ 3% 41-23