they can reach? If no, why not? If yes, show an example. (15. You are asked to evaluate the potential LBO of a company XYZ. The balance sheet (in million dollars) in year 0 (at acquisition completed) is a follows: Assets Liabilities and equity Bank loan paying 8.0% interest NWC 20.0 (high repayment costs) 50.0 Subordinated debt paying 10% interest Net fixed assets 165.0 (soft bullet and no pre-payment costs) 100.0 Other assets 15.0 Total debt 150.0 Equity 50.0 Total assets 200.0 Total liabilities and equity 200.0 The expectation is to pay down the subordinated debt following a 100% cash sweep rule. The company is not traded but a comparable company with no debt has an estimated cost of equity of 13.5%. The free cash flows (in millions of dollars) over the next 4 years: Year 1 Year 2 Year 3 Year 4 FCF 18.1 21.2 21.4 22.0 Your expectation is that the company can be sold at the end of year 3 for an enterprise value equal to 12 times year-4 FCF. Corporate tax rate is 30%. (a) Compute the debt repayment schedule over the next 3 years. (b) Evaluate the firm using the appropriate DCF method. Show details of your calculations. (16. MM 8L Co is currently nanced with a mixture of bonds and equity: equity is trading at $20 per share (there are 1.5 million shares outstanding); bonds have an aggregate market value of S10m. Each $100 bond pays a coupon of $3 at the end of the each year in perpetuity and are currently rated BBB. The corporate tax rate is 30%. The current owners are considering whether to issue $10m more of the same bonds to buy back equity. The expected probabilities of default (within a year) and annual yields for different ratings are as follows: Rating Probability of default (within 1 Average Yield year} 0 2% 0.001 2.2% 0.01 2.5% 0.05 3% 0.1 5% 0.2 10% 0.3 20% Common View is that the company will suffer costs of financial distress equal to $5million ifthey default