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Lecture7 - when to use APV

Newmanagementplanstorepaythebuyoutdebt

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Unformatted text preview: ll the debt inherited from the buying shell company. Usually, the new entity quickly repays its debt from cash flows, until within a few years it reaches a “target capital structure” that is chosen for the company. 6 Time-Pattern of Debt-Ratio B/S Target 0 1 2 3 4 5 Year 7 Acquisition Details PJ has unlevered perpetual cash flows of $15. PJ has book debt­to­book equity ratio of 1/3 and KKR experts believe that this is its “target capital structure”. New management plans to repay the buyout debt quickly, and reach a debt­equity ratio of 1/3 by th...
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