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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 $100 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 $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 toxes, estimate the rate of return to the buyout firm on the acquisition after debt service. Note: Round your answers to 1 decimal place

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