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An all - equity financed company has a cost of capital of 1 0 percent. It owns one asset a mine capable of generating $

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 $350 million financed with $300 million in compound interest debt to be repaid in five, equal, end-of-year payments and carrying an interest rate of 5.0 percent.
a. Calculate the annual debt-service payments required on the debt.
b. Ignoring taxes, estimate the rate of return to the buyout firm on the acquisition after debt service.
Note: Round your answers to 1 decimal place.
\table[[a. Annual debt service payment,$,693,million],[b. Rate of return,,,%
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