#3. You are a partner of Private Equity Firm, Lion LLC (Acquiring firm) and you have the following

information for the acquisition of the firm, ABC Corp (target firm), which is currently your project. The

target firm is a private firm.

Suggested bidding price for the target = $147 million

Comparable firms of the target firm: unlevered cost of capital = 6.54%

Five year estimation of free cash flow to the firm (FCF) and interest tax shields

o

FCF: 13 million (t=1), 7.4 million (t=2), -5.8 million (t=3), 1.4 million (t=4), and 10.3

million (t=5) & After t=5 and beyond FCF will grow at the constant growth rate = 5% and

cost of capital = 9%

o

Pre-determined Interest tax shields: $2.3 million at t=1, $2.3 million at t=2, $2.3 million

at t=3, $2.7 million at t=4, $2.8 million at t=5

Question: Perform NPV analysis for this project using APV method.

ANSWER: NPV = about 86 million (Would like to see work for this answer)