A group of Holmes top management is interested in acquiring Holmes in an LBO.

a. Briefly describe the factors that make Holmes an attractive and, conversely, an unattractive LBO candidate.

b. (This question requires coverage of Chapter 10.) Prepare projected financial statements for Holmes Corporation for Year 16 through Year 20 excluding all financing. That is, project the amount of operating income after taxes, assets, and cash flows from operating and investing activities. State the underlying assumptions made.

c. Ascertain the value of Holmes common shareholders equity using the present value of its future cash flows valuation approach. Assume a risk-free interest rate of 4.2% and a market premium of 5.0%. Note that information in Requirement e may be helpful in this valuation. Assume the following financing structure for the LBO: (see textbook)

d. (This question requires coverage of Chapter 13.) Ascertain the value of Holmes common shareholders equity using the residual income approach.

e.(This question requires coverage of Chapter 14.) Ascertain the value of Holmes common shareholders equity using the residual ROCE model and the price-to-earnings ratio and the market value to book value of comparable companies approaches. Selected data for similar companies for Year 15 appear in the following table (amounts in millions): (see textbook)

f. Would you attempt to acquire Holmes Corporation after completing the analyses in Requirements ae? If not, how would you change the analyses to make this an attractive LBO?