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%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Godo
Transcribed Image Text: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 90 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%
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education