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An all-equity financed company has a cost of capital of 10 percent. it owns one asset: a mine capable of generating $104 million in free

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An all-equity financed company has a cost of capital of 10 percent. it owns one asset: a mine capable of generating $104 million in free cash fiow every year for five years, at which time it will be abandoned. A buyout firm proposes to purchase the company for $390 million financed with $340 million in compound interest debt to be repoid in five, equal, end-of-year payments and carrying an interest rate of 70 percent a. Calculate the annual debi-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 answer to 1 decimal place

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