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Blackstone is contemplating a leveraged buyout of MGM Mirage. MGM ' s 1 . 2 billion shares currently trade at $ 1 1 ? share,
Blackstone is contemplating a leveraged buyout of MGM Mirage. MGMs billion shares currently trade at $ share, and the company has $ billion in longterm debt, $ billion in excess cash, and $ billion in shortterm liabilities that are due immediately. Blackstone is offering $ share to existing shareholders and plans to finance the buyout using $ billion of debt to with an interest cost of debt, rd equal to and $ billion of equity financing. The interest expenses in billions under the buyout plan are reported separately for old and new debt below. After increasing the incentives of the managers with increased equity stakes in the firm, Blackstone projects that MGM will generate free cash flows of $ billion next year and that these cash flows will grow at a year thereafter. Blackstone plans to sell MGM after years and anticipates the new owners will maintain a target D ratio of following the sale. With this of MGMs cost of debt will drop back to In your below analysis of this LBO, you should assume that MGMs unlevered cost of equity, ra equals You should also assume the corporate tax rate faced by MGM is Please express all values in billions of dollars.
tableYearInterest expense Old debtInterest expense New debt
What is the basecase NPV of MGM after the LBO ie unlevered value
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