Question

1. By investing $100 million today to acquire a competitor, in one year, the combined value will be $150 million. What is the net present value of this transaction? Assume a discount rate of 8%.

1. Economic interest rates have been at historically low values for much of the last decade to spur economic activity.
   1. TRUE
   2. FALSE

1. The following are major risks to leveraged buyouts
   1. Lack of profitability hurts debt repayment efforts
   2. More debt brings large interest payments
   3. Rising interest rates cause increased interest payments
   4. All of the above.

Answer 1

By investing $100 million today to acquire a competitor, in one year, the combined value will be $150 million. What is the net present value of this transaction? Assume a discount rate of 8%.

NPV = Cash Inflow / (1 + Interest)] - Cash Outflow

NPV = $150 M / (1 + 0.08)] - $100 M

NPV = $138.89 M - $100 M

NPV = $38.89 M

Economic interest rates have been at historically low values for much of the last decade to spur economic activity.

TRUE. The economic activity across the world has been spurred from the 20th century and before that economic activity has shown low values because the globalization, privatization and liberalization were introduced in second half of 19th century.

The following are major risks to leveraged buyouts

All of the above.

Correct option is all of the Above because the given options are correct

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