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Exercise 1(7 points) A group of investors consider the acquisition of a firm through a LBO of 3 years. It is assumed the pay-out ratio of the target will be 100%, i.e. the firm will pay-out its entire net profit. Table 1 gathers the projected net (after tax) profits of the firm over the three years. Year Table 1 Projected after tax profit 1 2 9,000 6,500 3 8,000 Net Profit The value of the firm is fixed at 120,000 and its total debt is 75,000. The acquisition holding is financed through equity and the issue of a 3 years zero-coupon bond with yield to maturity of 8%. It is further assumed that the holding can reinvest its excess-cash at a 5% rate of return. 1. Assuming that the acquisition holding should be able to completely repay its debt after 3 years with its accumulated cash, determine its initial capital structure, i.e. when the target is acquired