Alpha Geek

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    Polytechnic State University Sanluis
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Category > Business & Finance Posted 06 Aug 2017 My Price 8.00

An all-equity financed company has a cost of capital of 10 percent. It owns one asset: a mine

 An all-equity financed company has a cost of capital of 10 percent. It owns one asset: a mine capable of generating $100 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 $400 million financed with $350 million in debt to be repaid in five, equal, end-of- year payments and carrying an interest rate of 6 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.

c.    Assuming the company’s cost of capital is 10 percent, does the buy- out look attractive? Why or why not?

Answers

Alpha Geek
(8)
Status NEW Posted 06 Aug 2017 02:08 PM My Price 8.00

The----------- an-----------nua-----------l d-----------ebt----------- se-----------rvi-----------ce -----------pay-----------men-----------t =-----------$83-----------.09----------- mi-----------lli-----------on -----------($8-----------3.0-----------9=P-----------MT[-----------6%,-----------5yr-----------s,$-----------350-----------]) -----------b. -----------The----------- eq-----------uit-----------y i-----------nve-----------sto-----------r i-----------nve-----------sts----------- $5-----------0 m-----------ill-----------ion----------- at----------- ti-----------me -----------0 a-----------nd -----------rec-----------eiv-----------es -----------$16-----------.91----------- mi-----------lli-----------on

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