4 (25 points): You are considering acquiring an all-equity company. Its EBITDA in one year time is expected to be 10 million, and this value is expected to remain constant for ever. Depreciation in one year time is equal to 2 million and this value is expected to be equal to capital expenditures. Both depreciation and capital expenditures are expected to remain constant forever, and so is the level of working capital which currently is equal to 20% of EBITDA. The corporate tax rate is 20%. The beta of the equity is 1.2. The risk-free rate is 4% and the market risk premium is 5%. The average EV/EBITDA multiple in the industry where the company operates is 6. The company will remain all equity. a) (7.5 points) Would you be willing to buy the company at the average industry multiple? What is the highest EV/EBITDA multiple that you would be willing to pay for it? b) (10 points) What would the highest EV/EBITDA multiple that you would be willing to pay for it if you think that you will be able to generate the same EBITDA with a level of working capital equal to 10% of EBITDA starting exactly two years after the acquisition? c) (7.5 points) Upon further consideration, you realize that you will not be able to reduce the level of working capital. However, you think that you will be able to create value by taking a loan of 10 million with an interest rate of 5%. Will that increase the value of the firm and by how much? To simplify, you may assume that the debt is perpetual, only interest is paid every year, and that the loan proceeds are distributed to shareholders. Please explain the source of value creation (maximum 3 lines)