1. What is the absolute value of the annual tax expense of the recapitalized Company ZED?

2. What is the annual net income of the recapitalized Company ZED? Report your answer to 4 decimal places.

3. What is the annual Free Cash Flow to Owners (shareholders) of the recapitalized Company ZED? Report your answer to 4 decimal places.

4. What is your expected Sales Price for Company ZED?

Valuing an Entity with Buy-Manage-Sell Model Introduction Company ZED is a profitable, debt free entity, operating in steady-state forever. Despite this, the economy is in recession, which has depressed the price of ZED's stock. Your PE firm is considering buying ZED at the asking price of: $200 MM This corresponds to a PE ratio of: 10.75 Your firm believes that an optimal capital structure for the firm would be: 30% D/(D+E) If your firm buys company ZED: You will pay (1-D/(D+E))% of the purchase price with your firm's funds. Have the firm take out a loan at the moment of close, to pay the current owners the rest of the purchase price. Your firm will operate company ZED in its recapitalized steady-state for three years. You will sell ZED at the end of this time, when you believe the entity's PE ratio will have recovered to a more normal value of: 13.9785 Given Constants TRF 4.00% Bu BL 8.00% 1.3000 1.6454 Financing Structure D + E = CAP tot D/(D+E) = WD D Existing As purchased $200 $200.0 0.0% 30.0% $0.0 $200.0 E Key Rates Existing As purchased 7.00% 8.00% ro 9.20% re Income Tax rate 10.58% 38.00% Free Cash Flows FCFE Income Statement Revenue - Depreciation - Other Expenses = EBIT -Interest - Tax = NI Existing D = $0.0 $150.00 ($80.00) ($40.00) $30.00 $0.00 ($11.40) $18.60 As Purchased $150.00 ($80.00) ($40.00) $30.00 $0.00 - A Working Capital + Depreciation = CF operations, E $0.00 $80.00 $98.60 $80.00 CAPX + A Debt ($80.00) $0.00 $18.60 ($80.00) $0.00 = FCFE Valuation at T=0 NPVE = -Pp, E + E FCFE, i/ (1 +12)"' + Sp, e/(1+IE)" Pp.E FCFE = Computed above Spe= NPVE Valuing an Entity with Buy-Manage-Sell Model Introduction Company ZED is a profitable, debt free entity, operating in steady-state forever. Despite this, the economy is in recession, which has depressed the price of ZED's stock. Your PE firm is considering buying ZED at the asking price of: $200 MM This corresponds to a PE ratio of: 10.75 Your firm believes that an optimal capital structure for the firm would be: 30% D/(D+E) If your firm buys company ZED: You will pay (1-D/(D+E))% of the purchase price with your firm's funds. Have the firm take out a loan at the moment of close, to pay the current owners the rest of the purchase price. Your firm will operate company ZED in its recapitalized steady-state for three years. You will sell ZED at the end of this time, when you believe the entity's PE ratio will have recovered to a more normal value of: 13.9785 Given Constants TRF 4.00% Bu BL 8.00% 1.3000 1.6454 Financing Structure D + E = CAP tot D/(D+E) = WD D Existing As purchased $200 $200.0 0.0% 30.0% $0.0 $200.0 E Key Rates Existing As purchased 7.00% 8.00% ro 9.20% re Income Tax rate 10.58% 38.00% Free Cash Flows FCFE Income Statement Revenue - Depreciation - Other Expenses = EBIT -Interest - Tax = NI Existing D = $0.0 $150.00 ($80.00) ($40.00) $30.00 $0.00 ($11.40) $18.60 As Purchased $150.00 ($80.00) ($40.00) $30.00 $0.00 - A Working Capital + Depreciation = CF operations, E $0.00 $80.00 $98.60 $80.00 CAPX + A Debt ($80.00) $0.00 $18.60 ($80.00) $0.00 = FCFE Valuation at T=0 NPVE = -Pp, E + E FCFE, i/ (1 +12)"' + Sp, e/(1+IE)" Pp.E FCFE = Computed above Spe= NPVE