Suppose KCS Corp. buys out Patagonia Trucking, a privately owned business, for $50 million. KCS has only
Question:
Suppose KCS Corp. buys out Patagonia Trucking, a privately owned business, for $50 million.
KCS has only $5 million cash in hand, so it arranges a $45 million bank loan. A normal debt-to-value ratio for a trucking company would be 50% at most, but the bank is satisfied with KCS’s credit rating.
Suppose you were valuing Patagonia by APV in the same format as Table 19.2 . How much debt would you include? Explain briefly.
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