Asset beta

cost of capital

All- equity present value

Present Value

A group cfinvestors is intent on purchasing a publicty traded company and wants to estimate the highest price they can reasonabty justify The target company's egoity beta is 1.20 and its debt-to-firm value ratio. measured using market values. is 60 percent. The investors plan to improve the target's cash flows and sell it for 12 times free cash flow in year five. Projected free cash flows and TotI 3 selling price are as follows. cesh Selling 533 53 s mi ) 758 Sss SE3 To finance the purchase. the investors have negotiated SS30 million. five-year loan at 8 percent interest to be repaid in five equal payments at the end of each year. plus interest on the declining balance. T flis will be only interest-bearing debt outstanding afte the acquisition. Risk-fr VIE k , e t a. Estimate the target firm's asset beta. (Round your answer to 2 declmel places.) Tyget fm's bets b. Estimate the target's unlevered. or all-equity. cost of capital (KA). (Round your answer to I declml piece.) Tygers slquity. of cspits (KA) c. Estimate the target's all-equity present value. (Enter your answer In millions rounded to 2 declml places.) Tygers d. Estimate the present value of the interest tax shields on the acquisition debt discounted at KA. (Round Intermedlate calculetlons to