A small airline recently sold to a private equity group for, Microeconomics

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A small airline recently sold to a private equity group for

A small airline recently sold to a private equity group for $145 million. The airline has earned profits of $9 million last year. The new managers believe they can grow profits at 5% per year.

The private equity group borrows money from wealthy individuals to invest in acquisitions. Because of the significant risk involved, lenders are promised a 12% return on their loans to the equity group. Is the purchase price of the new airline reasonable? Explain

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