KKR is contemplating a leveraged buyout of Tempur-Pedic International (TPX). TPX's 15 million shares currently trade at $25 /share, and the company has $60 million in long-term debt. KKR is offering $35/ share to existing shareholders and plans to finance the buyout using $500 million of debt with an interest cost of debt, rd, equal to 12% and $25 million of equity. The interest expenses (in millions) for both the old and new debt are given below. [KKR will be responsible for both the old and new debt after the deal.] After increasing the incentives of the managers with increased equity stakes, KKR projects that TPX will generate free cash flows of $84 milion next year (t=1) and will remain the same in nominal terms thereafter. KKR plans to sell TPX after 5 years (t=5), and anticipates the new owners will maintain a target D/V ratio of 0.30 following the sale. With this D/V of 0.30 , TPX's cost of debt will drop back to 9%. In your below analysis of this LBO, you should assume that TPX's unlevered cost of equity, ra, equals 14% and use the Miles-Ezzell WACC. You should also assume the corporate tax rate faced by TPX is 35%. With LBO, what is the PV(interest tax shields) for years >5 ? 26.227.228.229.2 KKR is contemplating a leveraged buyout of Tempur-Pedic International (TPX). TPX's 15 million shares currently trade at $25/ share, and the company has $60 million in long-term debt. KKR is offering $35/ share to existing shareholders and plans to finance the buyout using $500 million of debt with an interest cost of debt, rd, equal to 12% and $25 million of equity. The interest expenses (in millions) for both the old and new debt are given below. [KKR will be responsible for both the old and new debt after the deal.] After increasing the incentives of the managers with increased equity stakes, KKR projects that TPX will generate free cash flows of $84 million next year (t=1) and will remain the same in nominal terms thereafter. KKR plans to sell TPX after 5 years (t=5), and anticipates the new owners will maintain a target D/V ratio of 0.30 following the sale. With this D/V of 0.30 , TPX's cost of debt will drop back to 9%. In your below analysis of this LBO, you should assume that TPX's unlevered cost of equity, ra, equals 14% and use the Miles-Ezzell WACC. You should also assume the corporate tax rate faced by TPX is 35%. What is the APV (i.e., value of the firm) of TPX under the LBO? \begin{tabular}{l} 508 \\ \hline 608 \\ 708 \\ \hline 808 \end{tabular}