Question
An acquirer is looking to buy a pool servicing company. The acquirer is going to finance 60% of his acquisition through bank financing/loan with 7.5%
An acquirer is looking to buy a pool servicing company. The acquirer is going to finance 60% of his acquisition through bank financing/loan with 7.5% coupon. The rest of the acquisition will be in a form of equity investment. The acquirer's investors required a 14.5% return on their investment in this purchase. The prevailing tax rate is 35% The acquirer was able to project the company's Free Cash Flow for the next 4 years. The growth rate after year 3 is projected to be in 4% in perpetuity"
Today's FCF: $3,000,000
FCF Yr1: $3,200,000
FCF Yr2: $3,600,000
FCF Yr3: $3,900,000
FCF Yr4: $4,095,000
What is the acquirer's cost of capital? What should he pay for the company on today's dollars? Show all the work and calculations.
Thank you very much guys!
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