DuPont Corporation Case Study

6. If a PE sponsor has a target return of 20% on its funds (equity contribution), what is the maximum enterprise value it can offer for DPC under parts (b) and (c) above? To do this, calculate the cash flows available to the equity holders every year and discount them at 20% to calculate the value of the equity of DPC.

a. If tax shields from the use of debt are not a large source of value, why can a PE sponsor pay so much more if leverage is used?

b. Suppose the PE firm decides to bid $5,281 million for the firm. What would be its expected return on its equity investment in the case of leverage versus no leverage?