An LBO fund has received an offer to sell from the founder of a company. The company manufactures paper that is not seasonal. In 2000, the company had a market share of 26 percent of the industry. The recent financial statements of the company are as follows:

The company’s sales are expected to increase at 10 percent per annum for the next 5 years. EBIT as a fraction of sales is expected to be 16 percent of sales. The company’s tax rate is 35 percent. Capital expenditure in each year is expected to be equal to the annual depreciation expense of Rs 5 lac. Further, working capital investment is expected to be 11 percent of sales. The terminal growth rate is expected to be 4 percent. The LBO involves heavy usage of debt carrying an interest rate of 15 percent repayable in 10 equal annual installments. The company has a cash balance of Rs 6 crore—of which, Rs 1 crore is sufficient to carry out operations.
Assuming a discount rate of 12 percent, what is a fair price for the company? How much debt would be required for the LBO? What level of debt can the company be able to service?