Chapter $8$ Question $13.$ 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.

Calculate the annual debt$-$service payments required on the debt.

Ignoring taxes, estimate the rate of return to the buyout firm on the acquisition after debt service.

Assuming the company$$s cost of capital is $10$ percent, does the buyout look attractive? Why, or why not?