Question
Brothers Inc., has the following financing outstanding: Debt: 300,000 bonds with a coupon rate of 4.0% and a current price of 120% of par. The
Brothers Inc., has the following financing outstanding: Debt: 300,000 bonds with a coupon rate of 4.0% and a current price of 120% of par. The bonds have 20 years to maturity and a par value of $1,000. The bond has semiannual compounding. Equity: 2.7 million shares of common stock with a current price of $130 per share and the beta of the stock is 1.19. Market: The corporate tax rate is 21%, the expected market return is 9.5%, and the risk-free rate is 0.02%. Brothers is considering purchasing Sisters Grill, a privately held restaurant. Sisters currently has debt outstanding with a market value of $15 million. The EBIT for Sisters next year is projected to be $13 million. EBIT is expected to grow at 9% per year for the next five years before slowing to 2% in perpetuity. Change in Net Working Capital, Capital Spending, and Depreciation as a percentage of EBIT are expected to be 5%, 4%, and 6%, respectively. Broke N Bored has 12.5 million shares outstanding and the tax rate is 21%.
What are the Cash Flows for Sisters expected to be in Years 1 - 5 (i.e., what is CF(A) for Years 1 - 5)?
Please show answer using Excel.
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