Assuming you get 50% control of Associated Steel,then your gain from this transaction will be closest to:
A)$50.0 million
B)$65 million
C)$75 million
D)$125 million

Question

Quizplus · Accepted Answer

B)Current value of the enterprise = $15 × 10 million shares = $150 million.Value with LBO = $150(1.50)= $225 million.You will need to borrow $20 × 5 million = $100 million in order to purchase shares.The value after the tender offer = $225 - $100 million in debt = $125 million.The share price after the LBO will be $125 million/10 million shares = $12.50.You will own 5 million shares at $12.50/share = $62.5 million.

Assuming You Get 50% Control of Associated Steel,then Your Gain