An all-equity financed company has a cost of capital of 10 percent. It owns one asset: a mine capable of generating $110 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

$440 million financed with $390 million in compound interest debt to be repaid in five, equal, end-of-year payments and carrying an interest rate of 6.0 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 answer to 1 decimal place.

An all-equity financed company has a cost of capital of 10 percent. It owns one asset: a mine capable of generating $110 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 $440 million financed with $390 million in compound interest debt to be repaid in five, equal, end-of-year payments and carrying an interest rate of 6.0 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