QUESTION 18

Please use the following data for the LBO Analysis of Marshall Inc.:

It is currently 2020, and you are a partner in a private equity firm who is considering acquiring Wong Inc. via an LBO. In preparing a sources and uses schedule, you have the following information:

• Value of Marshall's debt to be purchased (refinanced) = $90,000
• Value of Marshall's equity to be purchased = $110,000
• Transaction fee = $8,000
• New debt in the amount of $150,000 with a 10% interest rate will be raised by the financial sponsor to purchase the company

Calculate the Free Cash Flow to Equity for 2021 (for the one year only) and project the ending debt balance for 2021 assuming a cash sweep. As stated above, $150,000 of debt (with a 10% interest rate) will be raised to conduct the acquisition. Please list your Free Cash Flow to Equity (FCFE) for 2021 and the Ending Debt Balance (as of the end of 2021)

\\( \\begin{array}{lrrrr} & \\underline{\\mathbf{2 0 2 1}} & \\underline{\\mathbf{2 0 2 2}} & \\underline{\\mathbf{2 0 2 3}} & \\underline{\\mathbf{2 0 2 4}} \\\\ \\text { Sales } & 230,000 & 276,000 & 331,200 & 364,300 \\\\ \\text { Operating expenses (excluding D\\&A) } & 130,000 & 169,000 & 173,800 & 209,500 \\\\ \\text { Depreciation and Amortization } & 50,000 & 53,000 & 67,000 & 71,000 \\\\ \\text { Capex Investment } & 40,000 & 52,000 & 80,000 & 83,000 \\\\ \\text { NWC Investment / (liquiclation) } & 8,000 & (1,800) & 2,500 & (1,400)\\end{array} \\) The tax rate is \40