Valuing a Perpetuity Entity for all Financial Stakeholders Be sure to carefully read the introduction before starting this problem. $200 MM 40% D/(D+E). Introduction SuperCo (SC) is a profitable, debt-free entity, operating in steady-state forever. Your Equity/Debt investor team is considering buying it and adjusting its capital structure at T -0 (at time of purchase). Your team plans to live forever. The asking price for 100% of the firm's stock is: Your team believes that an optimal capital structure for the firm would be: If your team proceeds with the SuperCo transaction: - The equity investors will pay (1-1)/(D+E)% of the purchase price from their own funds. - SuperCo will take out a long-term loan at the moment of close, provided by the debt investors on the team, to pay the current owners the rest of the purchase price. - The equity investors will operate SuperCo in its recapitalized steady-state forever. -The loan will be periodically renewed at the same terms (at the same interest rate) forever. Find: The form's estimate of SuperCo's Enterprise Value The loan will be periodically renewed at the same terms (at the same interest rate) forever. Find: The team's estimate of SuperCo's Enterprise Value The NPV of this project for the Equity/Debt Investing Team Glven Constants Tw 3.00 7.00% 3.00% 7.00% 0.80 1.16 RO Bu (with no debt) B NA Existing As Purchased $200.0 $200.0 Financing Structure PPD D+E= CAP. - Market's view of Enterprise Value D/( DE) = WO D E 0.0% $0.0 $200.0 40.0% 1 2. Key Rates TO Income Tax rate Existing As Purchased 7.00% 8.000 33.00% 33.000N 6.200% 7.629% 62202 66.2225 E $200.0 Key Rates fo Income Tax rate Existing As Purchased 7.00% 8.000% 33.00% 33.000% 6.200% 7.629% 6.200% 6.722% FACE Free Cash Flows Existing As Purchased $132.00 $132.00 (545.00) (545.00) ($60.00) 1560.00) $27.00 $27.00 FCF DE) Partial Income Statement, NOPAT and FCFS (SMM UON) Revenue Depreciation - Other Expenses EBIT -Tax on EBIT =NOPAT - Working Capital Depreciation - 4 $0.0000 $45.0000 (545.0000) 5 FCF) Depreciation CAPX $45.0000 1545.0000) 5 FCF 6.72% Valuation at To Valuation Twack PVC-FCFD/twice = Team's Estimate of Enterprise Value PP-Purchase price (stock debt if any) Market's view of Enterprise Value NPV0-6 = P0.PP $200.00 7 1 pts Question 1 What is quantity 1 shown in a green background cel? 50 incements D Question 1 1 pts ussions What is quantity 1 (shown in a green background cell? des BO Ople Tutoring 1 pts D Question 2 What is quantity 2 (shown in a green background cel 120 1 pts D Question 3 What is the absolute value of quantity 3 Ishown in a green background cellll 891 nts Question 3 1 pts What is the absolute value of quantity 3 (shown in a green-background cell? 5.91 1 pts DD Question 4 What is quantity 4 shown in a green background cell? 18.09 1 pts D Question 5 What is quantity shown in a green background cell issions 1 pts Question 5 What is quantity shown in a green background cell les 11.09 aple Tutoring 1 pts Question 6 What is quantity 6 shown in a green background cell? 12156 1 pts Question 7 What is quantity 7 shown in a green background cell? MacBook Pro 1 pts Question 7 What is quantity 7 shown in a green background cell? an 1 pts Question 8 Based on your answer for quantity 7 should the team consider going ahead with this project! Choose one answer and one reason Because the NPV 40 Because the NPO Because the team cannot make a fra determination without any out of moderation NO SHOP roctore.com.co/43236/400010 o Question 8 1 pts Based on your answer for quantity 7, should the team considering whead with this project? Chome one answer and one reason Because the NPVO because the NPV0 Because the team cannot make a final determination without hang out of code code No Yes Not enough information is provided to www this question Consider the following for the next 10 questions Note: The line below rading "The equity investors will pay (1-0/ DK should read The timestors will pay ft-WIDEX" Valuing an Entity with Buy-Manage-Sell Model - Value to all stakeholders Introduction aprofitable, debt free entity. Note: The die below reading "The equity investors will pay (1-6/DIX should read the equity investor will pay 1-XD EX Valuing an Entity with Buy-Manage-Sell Model -- Value to all stakeholders Introduction Just Q Tips (IOT) is a profitable, debt free entity, operating in steady-state forever. Despite this, the economy is in recession, which has depressed the price of JQT's stock. Your Equity/Debt investor team is considering buying it and restructuring its debt The asking price for 100% of the firm's stock is: $150.00 MM Your team believes that an optimal capital structure for the firm would be 60% D/(DE) If your team proceeds with the Just Q Tips transaction The equity investors will pay (1-D/(DE))% of the purchase price from their own funds. Just Q Tips will take out a long-term loan at the moment of close, provided by the debt investors on the team, to pay the current owners the rest of the purchase price The equity investors will operate lust Q Tips in its recapitalized steady-state for three years. At the end of this time 100% of the stock will be resold for an estimated $70.00 MM and the load will be terminated. (Principal will be repaid). Glven Constants 3.DON 6.DON 0.0000 Gnu uit vau w WE GLU.FILIPAT WHITE reporu). Given Constants PRE Bu BE 3.00% 6.00% 0.6000 1.1670 Existing As purchased $150.0 $150.0 Financing Structure PPIDHE) =D + E = CAPO = Market's view of Enterprise Value D/(D+E) = Wp D 60.0% = 0.0% $0.0 $150.0 1 2 E Key Rates Income Tax rate Existing As purchased 37.000% 37.000% 7.000% 8.000% 4.800% 6.501% 4.800% 5.62440% re WACC Free Cash Flows FCF (DE) = NOPAT - 4 Working Capital + Deprec - CAPX Partial Income Statement, NOPAT and FCFS (SMM UON) Revenue Depreciation Other Expenses = EBIT Existing D=$0.0 $100.00 ($60.00) ($30.00) $10.00 ($3.70) As Purchased $100.00 ($60.00) ($30.00) $10.00 3 KOT Free Cash Flows FCF (D+) = NOPAT - A Working Capital + Deprec - CAPX Partial Income Statement, NOPAT and FCFS ($MM UON) Revenue - Depreciation - Other Expenses = EBIT - Tax on EBIT = NOPAT Existing D = $0.0 $100.00 ($60.00) ($30.00) $10.00 ($3.70) $6.30 As Purchased $100.00 ($60.00) ($30.00) $10.00 3 4 - A Working Capital + Depreciation - CAPX $0.00 $60.00 ($60.00) $6.30 $0.00 $60.00 ($60.00) 5 = FCF(D+E) Valuation at T=0 6 SPIDE) = Resale price of stock plus loan principal repayment 7 PVD-e) = Team's estimate of Enterprise Value 8 PP1D-e) = Purchase price (stock + loan) = Market's view of Enterprise Value 9 NPV (DE) = marion.com/ Question 9 What quantity 1 shown in a green background cell abus nouncements odules som Question 10 ats nades What arti 2 shown in a background ople BLC Tutoring 1 pts Question 11 What is the site value of quantity 3 Shown in apreenbackend 1 pts Question 12 OOO Question 11 1ts bus What is the solution shown background nouncements D Question 12 des Whats quantity 4 shown in een and cele -ople Tutoring spt D Question 13 What is shown in green background Question 14 wujuczes/400619/take RY Question 14 1 pts What is quantity 6 (shown in a green-background cell? Question 15 1 pts What is quantity 7 (shown in a green-background cell? 1 pts Question 16 What is quantity 8 (shown in a green-background cell)? a 1 pts Fe.com/courses/149236/quizzes/400619/take D Question 17 1 pts What is quantity 9 (shown in a green-background cell)? Question 18 1 pts Based on your answer for quantity 7 should the team consider going ahead with this project? Choose one answer and one reason Not enough information is provided to answer this question Because NPV > 0 Because the team cannot make a final determination without knowing the value at Risk (VaR). Because NPV 0 Because the team cannot make a final determination without knowing the value at Risk (VaR). Because NPV