What is the value of tax shields in this transaction

Assignment Help Financial Management

Reference no: EM131548078

It is the end of 1995. Texas Pacific Group (TPG), a U.S. based private equity firm with a newly opened London office is planning to purchase a controlling stake in Ducati Motor Holdings, an Italian motorcycle company. The analysts at TPG are projecting debt of $280 million in the first year of the buyout (i.e. at the end of 1996). This debt will be completely paid off by 2003. The following are the outstanding debt levels forecasted by TPG for Ducati following the buyout. 1995 1996 1997 1998 1999 2000 2001 2002 2003 Debt $280.00 $247.50 $240.00 $195.50 $149.50 $99.30 $46.30 $- The cost of debt is 11.25%. Ducati is subject to a 53.5% tax rate. What is the value of tax shields in this transaction? Assume that the risk of tax shields is the same as the risk of debt. For convenience, assume that interest is paid on the end-of-year debt values. Input your answer to the nearest two decimal places without the $ sign or commas.

Reference no: EM131548078

Questions Cloud

Speaking to an audience of business people : Given that you are a newly hired government agent and you are speaking to an audience of business people, using economics terms, concepts, and or methods

Purchases that consumers actually make : Why is it so important to choose a market basket that reflects purchases that consumers actually make?

Explain the domestic and international demand for cars : The car manufacturing industry in Australia, an industry employing many engineers, has collapsed. Not very long ago Holden, Toyota, Ford, Mitsubishi.

Do the controversial tactics utilized by israel work : The U.S. policy on the use of drones selectively targeting individuals such as Anwar. Do the controversial tactics utilized by Israel work? Why or why not?

What is the value of tax shields in this transaction : What is the value of tax shields in this transaction? Assume that the risk of tax shields is the same as the risk of debt.

Estimate terminal value of the company using pe multiple : What is your estimate of the current stock price. Suppose instead that you estimate the terminal value of the company using a PE multiple.

Monetary policy promote the employment : How does the monetary policy promote the employment, provide stable prices, and long-term interest rates?

Consider three most important concepts that you have learned : Consider the three most important concepts that you have learned in this course and complete the following statement: Based on ___________ that I learned.

Examine the price elasticity of demand for the product : Examine the price elasticity of demand for the product(s) your firm sells.

User Account

All Pages