Frank Olney is a partner in the private equity firm, Olney & Newton, LLC. Effective January 1, 2009, Frank plans to purchase a public firm with $5,000,000 of existing debt that he must assume. The firm has the following projected after-tax free cash flows from operations. 2023 2019 2020 2021 2022 Growth Rate $3,000,000 $3,000,000 $3,000,000 $3,000,000 $3,000,000 3% beyond 2013 Frank plans to finance the transaction as a leveraged buyout (LBO) and take the firm private. He will finance the transaction with $25,000,000 of new senior debt and pay annual interest on the $25,000,000 at a market rate of 9% per year. There are no principal repayments until the end of 2023 when the repayment of the entire $25,000,000 is due. At this point, Frank will refinance the company with a target market value debt-to-equity ratio of 1 and exit the investment by taking the company public again. Frank estimates that the cost of equity for a public all-equity firm of this risk is 10%, and that his levered cost of equity at his target debt-to- equity ratio of 1 is 11%. The cost of debt is 7.3% at the long-term target capital ratio and the combined federal and state tax rate is 26%. What is the maximum value of the equity to Frank? Clearly identify the steps in your valuation for partial credit. Frank Olney is a partner in the private equity firm, Olney & Newton, LLC. Effective January 1, 2009, Frank plans to purchase a public firm with $5,000,000 of existing debt that he must assume. The firm has the following projected after-tax free cash flows from operations. 2023 2019 2020 2021 2022 Growth Rate $3,000,000 $3,000,000 $3,000,000 $3,000,000 $3,000,000 3% beyond 2013 Frank plans to finance the transaction as a leveraged buyout (LBO) and take the firm private. He will finance the transaction with $25,000,000 of new senior debt and pay annual interest on the $25,000,000 at a market rate of 9% per year. There are no principal repayments until the end of 2023 when the repayment of the entire $25,000,000 is due. At this point, Frank will refinance the company with a target market value debt-to-equity ratio of 1 and exit the investment by taking the company public again. Frank estimates that the cost of equity for a public all-equity firm of this risk is 10%, and that his levered cost of equity at his target debt-to- equity ratio of 1 is 11%. The cost of debt is 7.3% at the long-term target capital ratio and the combined federal and state tax rate is 26%. What is the maximum value of the equity to Frank? Clearly identify the steps in your valuation for partial credit