An all-equity financed company has a cost of capital of 10 percent. It owns one asset: a mine capable of generating $112 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 $420 million financed with $370 million in compound interest debt to be repaid in five, equal, end-of-year payments and carrying an interest rate of 9.0 percent.

1. Calculate the annual debt-service payments required on the debt.
2. Ignoring taxes, estimate the rate of return to the buyout firm on the acquisition after debt service.

Annual debt service payment ? in millions

Rate of Return ?