Z, Inc. has no debt right now. You project that this company can generate EBIT of...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Z, Inc. has no debt right now. You project that this company can generate EBIT of 10 million per year for the next few years. There is no depreciation. You plan to attempt a leveraged buyout of this company. Your plan is to operate the company for three years and sell the company then. You think the company can be sold at price to EBIT ratio of 8 three years from now. You plan to borrow 62 million in three-year interest only loan and putting 18 millions of your own equity to buy the company. (Note that the loan is interest only and you do not plan to retire any debt before you sell the company. Your interest payment will remain the same for the three years.) The interest rate on the loan is 10% and the tax rate is 40%. The selling price of the company in three years is The interest expense of the company in the first year is The cash flow to the equity investor in the first year is The rate of return to the equity investor for this deal is million. million. million. %. Z, Inc. has no debt right now. You project that this company can generate EBIT of 10 million per year for the next few years. There is no depreciation. You plan to attempt a leveraged buyout of this company. Your plan is to operate the company for three years and sell the company then. You think the company can be sold at price to EBIT ratio of 8 three years from now. You plan to borrow 62 million in three-year interest only loan and putting 18 millions of your own equity to buy the company. (Note that the loan is interest only and you do not plan to retire any debt before you sell the company. Your interest payment will remain the same for the three years.) The interest rate on the loan is 10% and the tax rate is 40%. The selling price of the company in three years is The interest expense of the company in the first year is The cash flow to the equity investor in the first year is The rate of return to the equity investor for this deal is million. million. million. %.
Expert Answer:
Answer rating: 100% (QA)
ANSWER a Selling Price Selling Price 108 80 millions b Intere... View the full answer
Related Book For
Financial Management for Public Health and Not for Profit Organizations
ISBN: 978-0132805667
4th edition
Authors: Steven A. Finkler, Thad Calabrese
Posted Date:
Students also viewed these finance questions
-
You can save $5,000 per year for the next 5 years in an account earning 8 percent. how much will you have at the end of the fifth year if you make the first deposit today.
-
You need to determine i* per year for the cash flows shown below. Since you have a new boss, you decided to perform a thorough analysis. Do the following: (a) Use a spreadsheet to find i*. (b)...
-
EBIT and Leverage wild side, Inc has no debt outstanding and a total market value of $200,000. Earnings before interest and taxes, EBIT, are projected to be $25,000 if economic conditions are normal....
-
Simplify the expressions in Problems 3138. (3x - 1) (x + 3x - 2)
-
Explain why the recovery period used for tax depreciation purposes may be different from the estimated n value in an engineering economy study.
-
Estimate the maximum rotational kinetic energy of a yo-yo. Use a rotation axis that passes through the yo-yos center.
-
Show that the intercept term, \(b_{0}\), can be expressed as a weighted sum of the dependent variables. That is, show that \(b_{0}=\sum_{i=1}^{n} w_{i, 0} y_{i}\). Further, express the weights in...
-
Misty needs to have $15,000 at the end of 5 years to fulfill her goal of purchasing a small sailboat. She is willing to invest a lump sum today and leave the money untouched for 5 years until it...
-
An online book retailer, has two operating divisionslong dashcorporate sales and consumer saleslong dashand two support divisionslong dashhuman resources and information systems. Each sales division...
-
If carbon dioxide is present in the atmosphere, then plants have a source of carbon. Hence, since plants have a source of carbon, carbon dioxide is present in the atmosphere. Use the counterexample...
-
Find the general solution to y" +12y +36y=0. Construct an equation such that y=Ce* cos(3x) + Ce sin(3r) is its general solution. Find the solution to y" + 4y + 5y = 0 with y(0) = 2 and y'(0) = -1.
-
A portable x - ray unit has a step - up transformer. The 1 2 0 V input is transformed to the 1 0 0 kV output needed by the x - ray tube. The primary has 5 9 loops and draws a current of 1 1 . 8 A...
-
Rohit can consistently throw a 0.200-kg ball at a speed of 12.0 m/s. On one such throw, Rohit throws the ball straight upward and it passes the top of a flagpole when it is 6.00 m above the ball's...
-
A strain gauge blood pressure sensor is built from p-type semi-conductor. Eight small strain gauges with a nominal resistance R=100ohm and a gauge factor G=100 are placed on a small round disk (5mm...
-
A thermocouple is placed on one side of a solid 2 cm-thick 1 m x 1m (square) slab of aluminum, held at a uniform temperature of 25 o C. The surroundings are also at 25 degree celsius on both sides of...
-
An investigation into an unknown object in space resulted in the following observations: It is made of rock. It has a round shape. What additional piece of information is required to confirm that the...
-
A non-interest bearing promissory note has a $2400 maturity value and it matures in 90 days. You decide to sell the note 12 days before the legal due date. How much money do you sell it for if money...
-
The trade-off theory relies on the threat of financial distress. But why should a public corporation ever have to land in financial distress? According to the theory, the firm should operate at the...
-
Lafayette Film Center (LFC) is a not-for-profit theater that plays independent films. In addition to revenue from theater admissions, LFC relies on concession and caf sales, grants and other external...
-
The Millbridge tax collectors office spent $ 32,000 in the first quarter of the year, during which they processed 8,000 tax bills. It took a total of 1,000 hours of clerical time to process the tax...
-
The executive director of Mutt Rescue (MR) animal shelter has asked you to prepare an annual budget for the coming fiscal year as well as a flexible budget based on a 5 percent increase in the number...
-
What would be the length of a half-wave antenna for a radio station that emits its signal at \(90.5 \mathrm{MHz}\) ?
-
A sinusoidal electromagnetic wave has a maximum electric field magnitude of \(E_{\max }=500 \mathrm{~N} / \mathrm{C}\). What is the root-mean-square value of the electric field?
-
Full-body scanners at airports are sometimes referred to as millimeter-wave scanners and sometimes as terahertz scanners. Does this make sense?
Study smarter with the SolutionInn App