What yield to maturity required on subordinated debt

Assignment Help Financial Management

Reference no: EM131245473

You are trying to structure a leveraged buyout (LBO) of an all-equity firm estimated to be worth $100 million Its equity beta is .8 and the CAPM market risk premium is 6.2%. The deal is expected to be financed with 80% debt and will require a 50% premium above market.

In other words, the firm will cost $150 million and you expect to borrow $120 million The firms tax rate is 413%. The first $30 million is a five-year zero coupon loan designed to yield 10% to maturity. The next $90 million is zero coupon subordinated debt.

If the standard deviation of return on the firm's assets is 34% per year, the five-year risk-free rate is 9%, and you expect zero dividend payout, what yield to maturity will be required on the subordinated debt if its face value is $267.065 million? What will the cost of equity be?

Reference no: EM131245473

Questions Cloud

Long term government bond yields : Bill Bulge owned a grocery store in Missouri. In order to finance some inventory, he borrowed $3000 from Big Bucks Bank. The written agreement called for 20% interest to be paid at a time when long term government bond yields were 12%. At maturity, B..

Should the government be rationing radio wave frequencies : Should the government be rationing radio wave frequencies to ensure an efficient outcome in the broadcasting market in the presence of negative externalities from frequency overlap?

Implement the level order traversal : Write a recursive function named search that takes as input the pointer to the root of a binary tree (not a BST!) and a value K, and returns true if value K appears in the tree and false otherwise.

About either interest-investments or market prices in peru : Three graphics about either interest, investments or market prices in Peru, with theoretical explanations about one financial factor in Peru and its contribution to GDP (Presentation in powerpoint) There will be 3 brief graphs with explanations (BULL..

What yield to maturity required on subordinated debt : If the standard deviation of return on the firm's assets is 34% per year, the five-year risk-free rate is 9%, and you expect zero dividend payout, what yield to maturity will be required on the subordinated debt if its face value is $267.065 m..

What are the principal sources of economic growth : What are the principal sources of economic growth? How do you illustrate economic growth using the Production Possibility Curve? Depict and explain the effects of technological improvement in production of two goods.

What is four firms concentration ration for this industry : Consider data on U.S. refrigerator sales from 2009. the market shares of the top 4 firms was 12% for Sears, 9% for lowes. 5% for walmart and 3.5% for home depot. firms 5 through 25 combined summed to 20.5 % and all other independents outside the top ..

What does the lorenz curve illustrate : What does the Lorenz Curve illustrate? What does the Gini Index measure? How do you illustrate improved income distribution using the Lorenz Curve? How does improved income distribution affect the Gini Index?

Evaluate the validity of the arguments for synergy : Summarize the sources of synergy or operating gains from mergers that have been presented in the literature. - Evaluate the validity of the arguments for synergy.

User Account

All Pages