What will be the selling price of the company in three years

Assignment Help Financial Management
Reference no: EM132056317

Y, Inc. has no debt right now. You project that this company can generate EBIT of 8 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 9.5 three years from now. You plan to borrow 60 million in three-year interest only loan and putting 10 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%.

1. What will be the selling price of the company in three years (in millions)?

2. What is the cash flow to the equity investor in the first year (in millions)?

3. What is the cash flow to the equity investor in the third year in millions (the final year of the project, including sale proceeds and loan repayment)?

4. What is the rate of return to you as the equity investor (in percentage)?

Reference no: EM132056317

Questions Cloud

What is the traders net profit or loss and per share : At expiration, the stock traded for $38/share. What is the traders net profit or loss, per share?
How many participants will be involved in the study : Participants- How many participants will be involved in the study? What were the relevant characteristics (age, gender, race, etc.)?
Determine the degree of operating leverage : Identify the sources of business risk for Grounds Keeper. What can the company do to reduce the risk? Determine the Degree of Operating Leverage for 2012.
Explain important aspects of the counseling relationship : Discuss what you think are the most important aspects of the counseling relationship. Be sure to reference all your resources.
What will be the selling price of the company in three years : What will be the selling price of the company in three years (in millions)? What is the cash flow to the equity investor in the first year (in millions)?
Sake of increasing your company bank balances : Do you believe there are any ethical considerations in slowing payments to your suppliers for the sake of increasing your company's bank balances?
How many shares of stock will be outstanding once debt : how many shares of stock will be outstanding once the debt is issued if the break-even level of EBIT between these two capital structure options is $80,000?
What is the value of forward contract : The underlying stock is now worth $35.10. What is the value of the forward contract?
What strengths will you bring to field of career counselling : Considering the learning material in this course, what additional insight can you offer on the role of career counselors?

Reviews

Write a Review

Financial Management Questions & Answers

  Foreign company acquisition

Acquisition by a foreign company and the effects of that decision and the results of foreign exchange in Euro and the exchange rate differences.

  Financial management for profit and non profit organizations

In this essay, we are going to discuss the issues of financial management in a non-profit organisation.

  Method for estimating a venture''s value

Evaluate venture's present value, cash and surplus cash and basic venture capital.

  Replacement analysis

This document show the Replacement Analysis of modling machine. Is replacement give profit to company or not?

  Business finance task - capital budgeting

Your company is considering using the payback period for capital-budgeting. Discuss the advantages and disadvantages of this technique.

  Analysis of the investment

In this project, you will focus on one of these: the additional cost resulting from the purchase of an apple press (a piece of equipment required to manufacture apple juice).

  Conduct a what-if analysis

Review the readings and media for this unit, including the Anthony's Orchard case study media. Familiarise yourself with the Anthony's Orchard company and its current situation.

  Determine operational expenditures

Organisations' behaviour is guided by financial data. In the short term, such data will help determine operational expenditures; in the long term, historical data may help generate forecasts aimed at determining strategic plans. In both instances.

  Personal financial management

How much will you have left over each half year if you adopt the latter course of action?

  Sources of finance for expansion into new foreign markets

A quoted company is considering several long-term sources of finance for expansion into new foreign markets.

  Long term financial planning

This assignment is designed for analyze Long term financial planning begins with the sales forecast and the key input in the long term fincial planning.

  Explain the role of fincial manager

This assignment explain the role of fincial manager, function of manger. And what are the motives of financial manager.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd