TPI Inc., a manufacturer of computer storage devices, is planning to go public at the end of 2007. Future growth will be financed by TPI's internally generated CF and the additional borrowing made possible by the expected increase in the company debt capacity. The company has put together the following projections:

Consider the following 4-year projections for TPI.:
     
  

TPI's corporate tax rate is 38%. Its cost of equity is estimated accounting for risk and its relatively small size (its beta is 2.0, Treasury bond yield is 4.5%, equity premium is 4.4%, and micro-cap size premium is 3.9%.) TPI has issued 10 million shares to its present owners and plans to issue 5 million new shares in the IPO, bringing the total number of shares outstanding to 15 million



TPI starts with $200 million net debt at year-end 2007, increase debt to $300 million at year-end 2008, $400 million at year-end 2009, $500 million at year-end 2010, and finally attains a 40% debt ratio at year-end 2011 ($550 million). The cost of debt is 8%.



After 2011, EBIT are expected to grow at 5%



a. Estimate the APV of TPI Inc as of year-end 2007.

b. Estimate the value of TPI's share of common equity.

c. Compute the forward P/E multiple implied by your valuation at the beginning of 2008

2008 100 30 2 92 -5 10 Forecast 2009 120 40 3357 63 -5 2010 150 50 64 15 15 2011 190 55 4 69 15 20