Please could you include the excel spreadsheet computation (formula) to this problem for better understanding?

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CHAPTER 18 Valuation and Capital Budgeting for the Levered Rm 575 THE LEVERAGED BUYOUT OF CHEEK PRODUCTS, INC. Cheek Products, Inc. (CPI was founded 53 years ago by Joe Toods such as potato chips and pretzels. Through acquisitions, the company has grown into a conglomerate with major divisions in the snack food industry, home security sysiems, cos- metics, and plastics. Additionally, the company has several smaller divisions. In recent years Cheek and originally sold snack the company has been underperforming, but the company's management doesn't seem to aggressively pursuing opportunities to improve operations for the stock price Meg Whalen is a financial analyst specializing in identifying potential buyout targets She believes that two major changes are needed at Cheek. First, she thinks that the company would be better off if it sold several divisions and concentrated on its core competenci i snack foods and home security systems. Second, the company is financed entirely with equity Because the cash flows of the company are relatively steady. Meg thinks the company equity ratio should be at least .25. She believes these changes would significantly enhance sharcholder wealth, but she also believes that the existing board and company management are unlikely to take the necessary actions. As a tesult. Meg thinks the company is a good candidaie for a leveraged buyout. s debl- A leveraged buyout (LBO) is the acquisition by a small group of equity investors of a public or private company. Generally, an LBO is financed primarily with debt. The new holders service the heavy interest and principal payments with cash from operations asset sales. Sharcholders of a public offering or sale of the conm successful only if the firm generates the ers gencrally hope to reverse the LBO within three to seven years by way pany to another firm. A buyout is therefore likely to be enough cash to service the debt in the early years and if company is attractive to other buyers a few years down the road. Meg has suggested the potential LBO to her partners, Ben Feller and Brenton Flynn. Ben and Brenton have asked Meg to provide projections of the cash flows for the company. Meg has provided the following estimates (in millions): 2015 2016 2017 $2.749 $3.083 $3322 $3,400 $3.539 959 1,009 1,09 2018 2019 Saies Costs 1,149 485 564 575 $1533 $1,608 $1.776 $1,745 $1.815 EBT Capital expenditures Change in Nwc Asset sales 279 242 304 122 186 1.419 $1.028 308 s 304 95 s 108 10 At the end of five years, Meg estimates that the growth rate in cash flows will be 3.5 per- cent per year. The capital expenditures are for new projccts and the replacement of equipment that wears out. Additionally, the company would realize cash flow from the sale of several divi- sions. Even though the company will sell these divisions, overall sales should increase because of a more concentrated effort on the remaining divisions Brenton feel that in five years they will be able to sell the company purchase price. The interest payments on After plowing through the company's financials and various pro forma scenarios, Ben and to another party or take it blic again. They are also aware that they will have to borrow a considerable amount of the the debu for each of the next five years if the LBO is undertaken will be these (in nullions) 2015 2016 2017 2018 2019 Incerest payments $1.9271.859 $2.592 $2526 $2614 PART IV Capital Structure and Dividend Policy The company currently has a required return on assets of 14 percent. Because of the high debt level, the debt will carry a yield to maturity of 12.5 percent for the next five years. When the debt is refinanced in five years, they believe the new yield to maturity will be 8 percent. CPI currently has 425 million shares of stock outstanding that sell for $29 per share. The corporate tax rate is 40 percent. If Meg, Ben, and Brenton decide to undertake the LBO, what is the most they should offer per share? LEVERAGED BUYOUT OF CHEEK PRODUCTS, INC. L Cheek Products, Inc. (CP) was founded 53 years ago by Joe Check and oniginally sold foods such as potato chips and pretzels. Through acquisitions, the company has grown into a conglomerate with major divisions in the snack food industry, home security systems, cos- metics, and plastics. Additionally, the company has several smaller divisions. In recent years. the company has been underperforming, but the company's management doesn't seerm aggressively pursuing opportunities to improve operations (or the stock price to be Meg Whalen is a financial analyst specializing in identifying potential buyout targets She believes that two major changes are needed at Cheek. First, she thinks that the company would be better off if it sold several divisions and concentrated on its core competencies in security systems. Second, the company is financed entirely with equity. Because the cash flows of the company are relatively steady, Meg thinks the company's equity ratio should be at least 25. She believes these changes would signif hareholder wealth, but she also believes that the existing board and company management are unlikely to take the necessary actions. As a result. Meg thinks the company is a go for a leveraged buyout. ld significantly enhance A leveraged buyout (LBO) is the acquisition by a small group of equity investors of a c or private company. Generally, an LBO is financed primarily with debt. The new share- holders service the heavy interest and principal payments with cash from asset sales. Shareholders generally hope to reverse the LBO within three to seven years by way of a public offering or sale of the company to another firm. A buyout is therefore likely to be successful only if the firm generates enough cash to service the debt in the carly years and the company is attractive to other buyers a few years down the road Meg has suggested the potential LBO to her partners, Ben Feller and Brenton Flynn. Ben nd Brenton have asked Meg to provide projections of the cash flows for the company. Meg has provided the following estimates (in millions) 2015 2016 2017 $2.749 $3,083 $3,322 $3,400 $3,539 1,009 2018 2019 Sales Costs 731 485 959 516 1,091 1,149 575 537 564 EBT Capital expenditures Change in NWC Asset sales $1,533 $1.608 $1.776 $1,745 SIBIS 304 279 $ 122 242 s 186 101 s 95 $ 108 308 $ 304 $1,419 $1,028 At the end of five years, Meg estimates that the growth rate in cash flows will be 3.5 per cent per year. The capital expenditures are for new projects and the replacement of equipment that wears out. Additionally, the company would realize cash fnow from the sale of several divi sions. Even though the company will sell these divisions, overall sales shouid increase because of a more concentrated effort on the remaining divisions After plowing through the company's financials and various pro forma scenarios, Ben and Brenton feel that in five years they will be able to sell the company to another party or take public again. They are also aware that they will have to borrow a considerable amount of the purchase price. The interest payments on the debt for each of the next five years if the LBO undertaken will be these (in millions): 2015 2016 2017 2018 2019 Interest payments $1.927 $1859$2.592 $2.526 $26 CHAPTER 18 Valuation and Capital Budgeting for the Levered Rm 575 THE LEVERAGED BUYOUT OF CHEEK PRODUCTS, INC. Cheek Products, Inc. (CPI was founded 53 years ago by Joe Toods such as potato chips and pretzels. Through acquisitions, the company has grown into a conglomerate with major divisions in the snack food industry, home security sysiems, cos- metics, and plastics. Additionally, the company has several smaller divisions. In recent years Cheek and originally sold snack the company has been underperforming, but the company's management doesn't seem to aggressively pursuing opportunities to improve operations for the stock price Meg Whalen is a financial analyst specializing in identifying potential buyout targets She believes that two major changes are needed at Cheek. First, she thinks that the company would be better off if it sold several divisions and concentrated on its core competenci i snack foods and home security systems. Second, the company is financed entirely with equity Because the cash flows of the company are relatively steady. Meg thinks the company equity ratio should be at least .25. She believes these changes would significantly enhance sharcholder wealth, but she also believes that the existing board and company management are unlikely to take the necessary actions. As a tesult. Meg thinks the company is a good candidaie for a leveraged buyout. s debl- A leveraged buyout (LBO) is the acquisition by a small group of equity investors of a public or private company. Generally, an LBO is financed primarily with debt. The new holders service the heavy interest and principal payments with cash from operations asset sales. Sharcholders of a public offering or sale of the conm successful only if the firm generates the ers gencrally hope to reverse the LBO within three to seven years by way pany to another firm. A buyout is therefore likely to be enough cash to service the debt in the early years and if company is attractive to other buyers a few years down the road. Meg has suggested the potential LBO to her partners, Ben Feller and Brenton Flynn. Ben and Brenton have asked Meg to provide projections of the cash flows for the company. Meg has provided the following estimates (in millions): 2015 2016 2017 $2.749 $3.083 $3322 $3,400 $3.539 959 1,009 1,09 2018 2019 Saies Costs 1,149 485 564 575 $1533 $1,608 $1.776 $1,745 $1.815 EBT Capital expenditures Change in Nwc Asset sales 279 242 304 122 186 1.419 $1.028 308 s 304 95 s 108 10 At the end of five years, Meg estimates that the growth rate in cash flows will be 3.5 per- cent per year. The capital expenditures are for new projccts and the replacement of equipment that wears out. Additionally, the company would realize cash flow from the sale of several divi- sions. Even though the company will sell these divisions, overall sales should increase because of a more concentrated effort on the remaining divisions Brenton feel that in five years they will be able to sell the company purchase price. The interest payments on After plowing through the company's financials and various pro forma scenarios, Ben and to another party or take it blic again. They are also aware that they will have to borrow a considerable amount of the the debu for each of the next five years if the LBO is undertaken will be these (in nullions) 2015 2016 2017 2018 2019 Incerest payments $1.9271.859 $2.592 $2526 $2614 PART IV Capital Structure and Dividend Policy The company currently has a required return on assets of 14 percent. Because of the high debt level, the debt will carry a yield to maturity of 12.5 percent for the next five years. When the debt is refinanced in five years, they believe the new yield to maturity will be 8 percent. CPI currently has 425 million shares of stock outstanding that sell for $29 per share. The corporate tax rate is 40 percent. If Meg, Ben, and Brenton decide to undertake the LBO, what is the most they should offer per share? LEVERAGED BUYOUT OF CHEEK PRODUCTS, INC. L Cheek Products, Inc. (CP) was founded 53 years ago by Joe Check and oniginally sold foods such as potato chips and pretzels. Through acquisitions, the company has grown into a conglomerate with major divisions in the snack food industry, home security systems, cos- metics, and plastics. Additionally, the company has several smaller divisions. In recent years. the company has been underperforming, but the company's management doesn't seerm aggressively pursuing opportunities to improve operations (or the stock price to be Meg Whalen is a financial analyst specializing in identifying potential buyout targets She believes that two major changes are needed at Cheek. First, she thinks that the company would be better off if it sold several divisions and concentrated on its core competencies in security systems. Second, the company is financed entirely with equity. Because the cash flows of the company are relatively steady, Meg thinks the company's equity ratio should be at least 25. She believes these changes would signif hareholder wealth, but she also believes that the existing board and company management are unlikely to take the necessary actions. As a result. Meg thinks the company is a go for a leveraged buyout. ld significantly enhance A leveraged buyout (LBO) is the acquisition by a small group of equity investors of a c or private company. Generally, an LBO is financed primarily with debt. The new share- holders service the heavy interest and principal payments with cash from asset sales. Shareholders generally hope to reverse the LBO within three to seven years by way of a public offering or sale of the company to another firm. A buyout is therefore likely to be successful only if the firm generates enough cash to service the debt in the carly years and the company is attractive to other buyers a few years down the road Meg has suggested the potential LBO to her partners, Ben Feller and Brenton Flynn. Ben nd Brenton have asked Meg to provide projections of the cash flows for the company. Meg has provided the following estimates (in millions) 2015 2016 2017 $2.749 $3,083 $3,322 $3,400 $3,539 1,009 2018 2019 Sales Costs 731 485 959 516 1,091 1,149 575 537 564 EBT Capital expenditures Change in NWC Asset sales $1,533 $1.608 $1.776 $1,745 SIBIS 304 279 $ 122 242 s 186 101 s 95 $ 108 308 $ 304 $1,419 $1,028 At the end of five years, Meg estimates that the growth rate in cash flows will be 3.5 per cent per year. The capital expenditures are for new projects and the replacement of equipment that wears out. Additionally, the company would realize cash fnow from the sale of several divi sions. Even though the company will sell these divisions, overall sales shouid increase because of a more concentrated effort on the remaining divisions After plowing through the company's financials and various pro forma scenarios, Ben and Brenton feel that in five years they will be able to sell the company to another party or take public again. They are also aware that they will have to borrow a considerable amount of the purchase price. The interest payments on the debt for each of the next five years if the LBO undertaken will be these (in millions): 2015 2016 2017 2018 2019 Interest payments $1.927 $1859$2.592 $2.526 $26