What is the rate of return on equity investor

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Y, Inc. has no debt right now. You project that this company can generate EBIT of 10 million per year for the next few years. There is no depreciation. You plan to attempt a leveraged buyout of this company. Your plan is to operate the company for three years and sell the company then. You think the company can be sold at price to EBIT ratio of 8 three years from now. You plan to borrow 62 million in three-year interest only loan and putting 18 millions of your own equity to buy the company. (Note that the loan is interest only and you do not plan to retire any debt before you sell the company. Your interest payment will remain the same for the three years. The interest rate on the loan is 10% and the tax rate is 40%.

What is the rate of return on equity investor?

Reference no: EM133003199

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