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Template for RJR Leverage Buyout Your answers may be slightly different from the textbook because the textbook has small errors. Assumptions are in this color ro rb Target debt to value ratio Tax Rate 14% 13.5% 0.25 0.34 WACC Calculation Cost of Levered Equity, rs WACC 0 1 2 3 4 5 Short Horizon Growth Rates FCFF Short period Interest Short period Interest Tax Shield 2612.1 2690.4 2771.2 2854.3 5404.0 3384.0 2939.9 3028.1 3119.0 forever 4311.0 3004.0 2173.0 3111.0 2336.0 3294.0 2536.0 3483.0 Terminal Values Terminal Value at target debt ratio Unlevered Terminal Value (UTV) Tax-Shields in Terminal Value LTV5 UTV5 PV taxShld Present Values PVO of short horizon FCFF @ r0 PVO of terminal FCFF or PVO of UTV @r0 PVO of short horizon tax-shields @ rb PVO of tax-shields in Terminal Value @ rb Total Value of Levered Firm EEEEEEEE VI=Vu+PVO of tax shields