AutoCar Group, an automotive company, is interested in acquiring AirPlane GmbH. AirPlane GmbH is an aircraft company for which AutoCar Group has estimated the expected future free cash-flows to be 90m in t=1, growing at 2% per year forever; that is, the cash-flow is expected to be 91.8m in t=2, 93.636m in t=3 etc.

				+	m	(forecast), m
AutoCar Group	Automotive	1.9	0.2	40%	3210	74
DEF	Automotive	1.8	0.4	50%	1872	63
GHI	Aircraft & Sausages	1.6	0.2	20%	771	52
JKL	Aircraft & Sausages	1.7	0.3	30%	889	84
MNO	Aircraft	1.7	0.1	10%	1238	127
PQR	Aircraft	1.9	0.3	30%	441	53

Additionally, AutoCar has gathered the following information about its own and some other companies:

Company Industry

Total market value (D+E),

Free cash- flow at t=1

All companies face the same marginal corporate tax rate of 30%. The risk-free rate is 5% and the market risk premium is 6%. Assume that the riskiness of the interest tax shields is similar to the riskiness of the unlevered assets; that is, you should use the unlevered cost of capital (=expected return on assets) as the discount rate for the interest tax shields.

1. What is the value of Airplan GmbH when using multiples approach?

2. What is the unlevered cost of capital (expected return on assets) for AirPlane GmbH?

3. Use the APV method to calculate the value of Airplane GmbH. Assume that the interest expenses of AirPlane GmbH are equal to 10% of the free cash-flows given above. You may ignore potential costs of financial distress and any other financing effects except potential tax benefits. Suppose that the firms investors (debt- and equityholders) of AirPlane GmbH agree to sell the company to AutoCar Group for 700m. What is the NPV of this acquisition for AutoCar Group?