1. What is quantity 1 (shown in a green-background cell)?

2. What is quantity 2 (shown in a green-background cell)?

3. What is the absolute value of quantity 3 (shown in a green-background cell)?

4. What is quantity 4 (shown in a green-background cell)?

5. What is quantity 5 (shown in a green-background cell)?

6. What is quantity 6 (shown in a green-background cell)?

7. What is quantity 7 (shown in a green-background cell)?

8. What is quantity 8 (shown in a green-background cell)?

9. What is quantity 9 (shown in a green-background cell)?

10. Based on your answer for quantity 7, should the team consider going ahead with this project? Choose one answer and one reason.

Because NPV

Because the team cannot make a final determination without analyzing out-of-model considerations.

Not enough information is provided to answer this question.

No

Because NPV > 0

Yes

Valuing an Entity with Buy-Manage-Sell Model -- Value to all Stakeholders Introduction Just Q Tips (JQT) is a profitable, debt free entity, operating in steady-state forever. Despite this, the economy is in recession, which has depressed the price of JQT's stock. Your Equity/Debt investor team is considering buying it and restructuring its debt The asking price for 100% of the firm's stock is: $150.00 MM Your team believes that an optimal capital structure for the firm would be: 60% D/(D+E) If your team proceeds with the Just Q Tips transaction: - The equity investors will pay (1-D/(D+E))% of the purchase price from their own funds. Just Q Tips will take out a long-term loan at the moment of close, provided by the debt investors on the team, to pay the current owners the rest of the purchase price. - The equity investors will operate Just Q Tips in its recapitalized steady-state for three years. - At the end of this time: 100% of the stock will be resold for an estimated $70.00 MM and the load will be terminated. (Principal will be repaid). Given Constants PRE IM 3.00% 6.00% 0.6000 Bu BL 1.1670 Existing As purchased $150.0 $150.0 PP(D+E) Financing Structure = D + E = CAP tot = Market's view of Enterprise Value D/(D + E) = WD D 60.0% 0.0% $0.0 $150.0 1 E 2 Key Rates Income Tax rate Existing As purchased 37.000% 37.000% 7.000% 8.000% TE 4.800% 6.501% rwacC 4.800% 5.62440% Free Cash Flows FCF (D+E) = NOPAT - A Working Capital + Deprec - CAPX Partial Income Statement, NOPAT and FCFS ($MM UON) Revenue - Depreciation - Other Expenses = EBIT - Tax on EBIT = NOPAT Existing D = $0.0 $100.00 ($60.00) ($30.00) $10.00 ($3.70) $6.30 As Purchased $100.00 ($60.00) ($30.00) $10.00 3 4 - A Working Capital + Depreciation $0.00 $60.00 ($60.00) $6.30 $0.00 $60.00 ($60.00) 5 - CAPX - FCFD+E) Valuation at T=0 Sp(D+E) = Resale price of stock plus loan principal repayment 6 PV (D+E) = Team's estimate of Enterprise Valuue 7 PP(D+E) 8 = Purchase price (stock + loan) = Market's view of Enterprise Value NPV (D+E) 9 Valuing an Entity with Buy-Manage-Sell Model -- Value to all Stakeholders Introduction Just Q Tips (JQT) is a profitable, debt free entity, operating in steady-state forever. Despite this, the economy is in recession, which has depressed the price of JQT's stock. Your Equity/Debt investor team is considering buying it and restructuring its debt The asking price for 100% of the firm's stock is: $150.00 MM Your team believes that an optimal capital structure for the firm would be: 60% D/(D+E) If your team proceeds with the Just Q Tips transaction: - The equity investors will pay (1-D/(D+E))% of the purchase price from their own funds. Just Q Tips will take out a long-term loan at the moment of close, provided by the debt investors on the team, to pay the current owners the rest of the purchase price. - The equity investors will operate Just Q Tips in its recapitalized steady-state for three years. - At the end of this time: 100% of the stock will be resold for an estimated $70.00 MM and the load will be terminated. (Principal will be repaid). Given Constants PRE IM 3.00% 6.00% 0.6000 Bu BL 1.1670 Existing As purchased $150.0 $150.0 PP(D+E) Financing Structure = D + E = CAP tot = Market's view of Enterprise Value D/(D + E) = WD D 60.0% 0.0% $0.0 $150.0 1 E 2 Key Rates Income Tax rate Existing As purchased 37.000% 37.000% 7.000% 8.000% TE 4.800% 6.501% rwacC 4.800% 5.62440% Free Cash Flows FCF (D+E) = NOPAT - A Working Capital + Deprec - CAPX Partial Income Statement, NOPAT and FCFS ($MM UON) Revenue - Depreciation - Other Expenses = EBIT - Tax on EBIT = NOPAT Existing D = $0.0 $100.00 ($60.00) ($30.00) $10.00 ($3.70) $6.30 As Purchased $100.00 ($60.00) ($30.00) $10.00 3 4 - A Working Capital + Depreciation $0.00 $60.00 ($60.00) $6.30 $0.00 $60.00 ($60.00) 5 - CAPX - FCFD+E) Valuation at T=0 Sp(D+E) = Resale price of stock plus loan principal repayment 6 PV (D+E) = Team's estimate of Enterprise Valuue 7 PP(D+E) 8 = Purchase price (stock + loan) = Market's view of Enterprise Value NPV (D+E) 9