Valuing an Entity with Buy-Manage-Sell Model -- Value to all Stakeholders Introduction Just Q Tips (JQT) 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/(D+E) If your team proceeds with the Just Q Tips transaction: - The equity investors will pay (1-D/(D+E))% 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 Just 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). Given Constants FRE 3.00% 6.00% Bu 0.6000 BL 1.1670 Existing As purchased $150.0 $150.0 Financing Structure Ppidue) =D + E = CAPO = Market's view of Enterprise Value D/(D+E) = Wo D E 60.0% 0.0% $0.0 $150.0 1 2 Key Rates Income Tax rate Existing As purchased 37.000% 37.000% 7.000% 8.000% 4.800% 6.501% 4.800% 5.62440% TE WACC Free Cash Flows FCF (DME) = NOPAT - Working Capital + Deprec - CAPX Partial Income Statement, NOPAT and FCFS ($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 $0.00 $60.00 $0.00 $60.00 Partial Income Statement, NOPAT and FCFs ($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 (DE) Valuation at T=0 SP(Due) = Resale price of stock plus loan principal repayment 6 PV(DE) = Team's estimate of Enterprise Valuue 7 00 PP (04) = Purchase price (stock + loan) = Market's view of Enterprise Value NPVD+E) - 9 What is quantity 1 (shown in a green-background cell)? D Question 10 What is quantity 2 (shown in a green background cell)? D Question 11 What is the absolute value of quantity 3 (shown in a green-background cell)? D Question 12 What is quantity 4 (shown in a green-background cell)? What is quantity 5 (shown in a green background cell)? D Question 14 What is quantity 6 (shown in a green-background cell)? Question 15 What is quantity 7 (shown in a green background cell)? a Question 16 What is quantity 8 (shown in a green-background cell)? Question 17 What is quantity 9 (shown in a green background cell)? Question 18 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). No Valuing an Entity with Buy-Manage-Sell Model -- Value to all Stakeholders Introduction Just Q Tips (JQT) 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/(D+E) If your team proceeds with the Just Q Tips transaction: - The equity investors will pay (1-D/(D+E))% 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 Just 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). Given Constants FRE 3.00% 6.00% Bu 0.6000 BL 1.1670 Existing As purchased $150.0 $150.0 Financing Structure Ppidue) =D + E = CAPO = Market's view of Enterprise Value D/(D+E) = Wo D E 60.0% 0.0% $0.0 $150.0 1 2 Key Rates Income Tax rate Existing As purchased 37.000% 37.000% 7.000% 8.000% 4.800% 6.501% 4.800% 5.62440% TE WACC Free Cash Flows FCF (DME) = NOPAT - Working Capital + Deprec - CAPX Partial Income Statement, NOPAT and FCFS ($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 $0.00 $60.00 $0.00 $60.00 Partial Income Statement, NOPAT and FCFs ($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 (DE) Valuation at T=0 SP(Due) = Resale price of stock plus loan principal repayment 6 PV(DE) = Team's estimate of Enterprise Valuue 7 00 PP (04) = Purchase price (stock + loan) = Market's view of Enterprise Value NPVD+E) - 9 What is quantity 1 (shown in a green-background cell)? D Question 10 What is quantity 2 (shown in a green background cell)? D Question 11 What is the absolute value of quantity 3 (shown in a green-background cell)? D Question 12 What is quantity 4 (shown in a green-background cell)? What is quantity 5 (shown in a green background cell)? D Question 14 What is quantity 6 (shown in a green-background cell)? Question 15 What is quantity 7 (shown in a green background cell)? a Question 16 What is quantity 8 (shown in a green-background cell)? Question 17 What is quantity 9 (shown in a green background cell)? Question 18 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). No