EBIT RJR's Projected FCFF ($ millions) Depreciation Capital expenditures Change in working capital After-tax Proceeds from asset sales 1989 1990 1991 1992 1993 $2,620 $3,410 $3,645 $3,950 $4,310 449 475 475 475 475 522 512 525 538 551 -203 -275 200 225 250 3,545 1,805 The free cash flow (FCFF) is projected to grow at the modest annual rate of 3% after 1993. With respect to financial strategy, KKR planned a significant increase in leverage of RJR with accompanying tax benefits. The following table presents the projected interest expense from the transaction for years 1989-1993. Projected Interest Expense and Tax Shields ($ millions) Interest expense 1989 3,384 1990 3,004 1991 3,111 1992 1993 3,294 3,483 From 1993, debt will be reduced and maintain a permanent level of $9 billion. 2 The required rate of return on assets, ra, is 14% at the time of the buyout. The average cost of debt, td. is approximately 13.5%. Note that at the time of the bidding, RJR had $5 billion of debt (i.e., current debt) and 229 million shares outstanding. Your task: Use the Adjusted Present Value (APV) method to estimate the price per share of RJR.