Find the fcf to equity for smu corp in year zero

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SMU Corp is considering the acquisition of another firm in its industry for $100 million. The acquisition is expected to increase SMU's free cash flow by $5 million the first year, and this contribution is expected to grow at a rate of 3% every year thereafter.

SMU currently maintains a debt to equity ratio (D/E) of 1.5, its corporate tax rate is 21%, its cost of debt (rD) is 6%, and its cost of equity (rE) is 10%. SMU will maintain a constant debt-equity ratio for the acquisition.

Find the FCF to Equity for SMU Corp in year zero.

Reference no: EM132826165

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