An all-equity financed company has a cost of capital of 10 percent. It owns one asset a mine capable of generating $106 million in free cash flow every year for five years, at which time it will be abandoned. A buyout firm proposes to purchase the company for $410 million financed with $360 million in compound interest debt to be repaid in five, equal, end-of-year payments and carrying an interest rate of 9.0 percent a. Calculate the annual debt-service payments required on the debt b. Ignoring taxes, estimate the rate of return to the buyout firm on the acquisition after debt service. Note: Round your answers to 1 decimal place. a Annual debt service payment b Rate of return $ 95.6 million 1.6%

An all-equity financed company has a cost of capital of 10 percent. It owns one asset a mine capable of generating $106 million in free cash flow every year for five years, at which time it will be abandoned. A buyout firm proposes to purchase the company for $410 million financed with $360 million in compound interest debt to be repaid in five, equal, end-of-year payments and carrying an interest rate of 9.0 percent a. Calculate the annual debt-service payments required on the debt b. Ignoring taxes, estimate the rate of return to the buyout firm on the acquisition after debt service. Note: Round your answers to 1 decimal place. a Annual debt service payment b Rate of return $ 95.6 million 1.6%

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 5P

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