Random Inc generates operating profit of either $4 or $5 M with equal probabilities, but the risk is idiosyncratic. Risk-free rate is 3%. The company pays 21% on its profits. KRR decided to take the company private and offered shareholders of Random Inc a total purchase price of $140M. KRR plans to finance the transaction with as much risk-free debt as possible. What is the return on this investment that KRR can expect to receive? [enter your answer in % with two digits precision]
Random Inc generates operating profit of either $4 or $5 M with equal probabilities, but the risk is idiosyncratic. Risk-free rate is 3%. The company pays 21% on its profits. KRR decided to take the company private and offered shareholders of Random Inc a total purchase price of $140M. KRR plans to finance the transaction with as much risk-free debt as possible. What is the return on this investment that KRR can expect to receive? [enter your answer in % with two digits precision]
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
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Random Inc generates operating profit of either $4 or $5 M with equal probabilities, but the risk is idiosyncratic. Risk-free rate is 3%. The company pays 21% on its profits. KRR decided to take the company private and offered shareholders of Random Inc a total purchase price of $140M. KRR plans to finance the transaction with as much risk-free debt as possible. What is the return on this investment that KRR can expect to receive? [enter your answer in % with two digits precision]
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