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In November of 1 9 8 8 , KKR , an investment firm, won a bidding war to buy all of the shares ( 2

In November of 1988, KKR, an investment firm, won a bidding war to buy all of the shares (250.612 million) of RJR Nabisco for $108 per share. RJR shares had been trading for $55 prior to the buyout. The purchase was debt financed ($27.06609 billion). The new debt was added to the $3.08715 billion of debt that predated the buyout. The new debt resulted in a debt-to-value ratio of 84.90% which RJR was committed to maintaining in perpetuity. Analysts expected RJR to generate free cash flow of $1.28 billion at the end of 1989. Assume that cash flows occur on December 31 and today is January 1,1989. Analysts expected RJRs cash flow to grow at 6% in perpetuity. RJRs cost of debt was 10% and its cost of unlevered equity was 13%. The tax rate was 40%.
What was the value of KKRs equity in the company after the buyout (on January 1,1989)? Express your answer in billions of dollars rounded to one decimal place.

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