Q3. If EBIT in Year 1 is 6.5M (instead of 11.5M, in the attached screenshot), but all other assumptions are the same, what is the internal rate of return to:(i) Senior Debt Investors;(ii) Mezzanine Debt Investors;(iii) Equity Investors? Leveraged buyout exampleAssume the following: (All cashflows in $M occur at the end of the year)A target company (ungeared) has a cost of $50M, funded by:- Senior debt (70%)- Mezannine debt (20%)- Equity (10%)Interest and tax rates:- Senior debt = 12% p.a. (on a reducing basis)- Mezannine debt = 15% p.a. interest only plus 15% ownership share ofbusiness at the end of 4 years- Corporate tax rate = 36%Cashflow forecasts- EBIT = $11.5M in year 1, then 2% growth in EBIT per annumDepreciation = $2M per annumInvestment expenditure = $2M per annumBusiness (geared) sold at the end of year 4 at an exit PE multipleof 7 times Year 4 Profit After Tax%3D

The Leveraged buyout: The leveraged buyout occurs when a company acquires another company with…

Q3. If EBIT in Year 1 is 6.5M (instead of 11.5M, in the attached screenshot), but all other assumptions are the same, what is the internal rate of return to: (i) Senior Debt Investors; (ii) Mezzanine Debt Investors; (iii) Equity Investors?

Q3. If EBIT in Year 1 is 6.5M (instead of 11.5M, in the attached screenshot), but all other assumptions are the same, what is the internal rate of return to: (i) Senior Debt Investors; (ii) Mezzanine Debt Investors; (iii) Equity Investors?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section: Chapter Questions

Problem 10P

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