Valuation for Mergers, Buyouts, and Restructuring, Second Edition

Appendix C

Answers to Selected End-of-Chapter Problems

CHAPTER 2

• 2.1. After-tax cash flow = $135, 000.
• 2.4.
  1. Applying the comparable EBITDA multiple to Fleet's 2004 EBITDA yields: 56.7 × 6 = $340 million.
  2. Cost of debt = 7%, cost of equity = 4.5% + (1.32)(4.4%) + 3.9% = 14.4%, WACC = 9.27%.

     

• 2.5. Cost of equity = 4.5% + (0.66)(4.4%) + 3.9% = 11.3%.

  

• 2.8.
  • (b)

    Enterprise value	$1,198.4 million
    Debt	650.0
    Equity	548.4
    Shares	35
    Value per share	$15.67

  • (c)

    

• 2.11. EPS₂₀₁₃ = (0.99)(1.185)⁵(1.09)⁵ = $3.6

  Dividend₂₀₁₄ = (0.51)(3.6)(1.04) = $1.9

  Share value₂₀₁₃ = 1.9/(0.10 − 0.04) = $31.7

  Share value₂₀₀₂ = $31.7/(1.12)¹⁰ = $10.2.

CHAPTER 3

• 3.3. Required return on the S&P 500 index: k = 9% + (4%)(1) = 13.0%.
  1. P/E₀ = Payout (1 + g)/(k − g) or

     

     versus a compound growth rate of earnings during the post-war period of about 2%.

  2. The long-term nominal growth of earnings and dividends would be about (1.02)(1.045) − 1 = 6.6%. Hence,

     

     where D₀/E₀ = 0.614 and P/E₀ = 21.2. Solving for k, it ...