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You are a first-year analyst at Bayou Capital. You have been tasked with calculating the present value of all interest tax shields that will be generated in the firm’s latest leveraged buyout. The LBO target will have the following amounts of debt outstanding every year:
Year 0 - 5000
Year 1 - 4600
Year 2 - 4300
Year 3 - 4000
Year 4 - 3500
Year 5 - 3000
After year five, the amount of debt outstanding will grow at a constant rate of 2% per year. The interest rate on the firm’s debt is 10% during the first five years and 7% from year six onwards. Interest has to be paid at the end of each year based on the amount of debt outstanding as of the end of the previous year. The risk-free rate is 3%. The expected return on the overall stock market is 8%. The target’s equity beta is 1.8. The corporate tax rate is 35%. Year zero ended yesterday.
Please calculate the present value of all interest tax shields generated in the LBO. Someone else is handling the calculation of unlevered firm value, flotation fees etc. so you do not need to do that.
Cash Coverage, Inc. had net sales of $300,000 last year, and increased its retained earnings by $10,000 for the year after paying a dividend of $2 per share on 10,000 outstanding shares. The tax rate for the company is 40%. The company had cost of go..
What would happen if the diagnostic step was not conducted? What would happen if the diagnostic step was poorly researched and evaluated? What types of data will be gathered, from whom, and how will they be analyzed?
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A porfolio consists of 75% invested in Security A with an expected return of 35% and 25% invested in Security B with an expected return of 7%. Compute the expected return on the portfolio.
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The _____ assumes that investors value a dollar of dividends more highly than a dollar of expected capital gains. The ____ proposes that investors prefer capital gains over dividends, because capital gains taxes can be deferred into the future, but t..
Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 7%, and its stock price is $40 per share with 2 million shares outstanding. BEA is considering increas..
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