Q3) Ron Gastrobar Inc. is a privately owned business that owns a number of small restaurants. The owner of the firm is considering an offer to buy the firm and has asked for your help in evaluating the offer. The income statement for the firm for the most recent year is reported below (in '000s): Revenues $5,000 - Operating Expenses $3,500 EBIT $ 1,500 - Interest Expenses $ 300 - Taxes $ 420 Net Income $ 780 The owner did not pay herself a salary last year, but believes that $ 100,000 would be a reasonable salary for a general manager. The firm is in stable growth, and is expected to grow 5% a year forever (with a 40% reinvestment rate). You estimate the unlevered beta of publicly traded restaurants to be 0.80 and the correlation coefficient with the market to be 50%. The average debt to capital ratio for these firms is 30%, and you believe that Ron Gastrobar will have to operate at close to this average. If the risk-free rate is 3%, the market risk premium is 6% and the cost of debt is 4%, a. Estimate the value of Ron Gastrobar for sale in a private transaction (to an individual who will not be diversified). b. Estimate the value of Ron Gastrobar for sale to a public corporation. Explain. Q3) Ron Gastrobar Inc. is a privately owned business that owns a number of small restaurants. The owner of the firm is considering an offer to buy the firm and has asked for your help in evaluating the offer. The income statement for the firm for the most recent year is reported below (in '000s): Revenues $5,000 - Operating Expenses $3,500 EBIT $ 1,500 - Interest Expenses $ 300 - Taxes $ 420 Net Income $ 780 The owner did not pay herself a salary last year, but believes that $ 100,000 would be a reasonable salary for a general manager. The firm is in stable growth, and is expected to grow 5% a year forever (with a 40% reinvestment rate). You estimate the unlevered beta of publicly traded restaurants to be 0.80 and the correlation coefficient with the market to be 50%. The average debt to capital ratio for these firms is 30%, and you believe that Ron Gastrobar will have to operate at close to this average. If the risk-free rate is 3%, the market risk premium is 6% and the cost of debt is 4%, a. Estimate the value of Ron Gastrobar for sale in a private transaction (to an individual who will not be diversified). b. Estimate the value of Ron Gastrobar for sale to a public corporation. Explain