The Leveraged Buyout of Cheek Products, Inc

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Chapter 17 Mini Case
The Leveraged Buyout of Cheek Products, Inc
(in millions)

20072008200920102011PV of UCF 2007-2011 at 14%
Sales $1,627 $1,824 $1,965 $2,012 $2,106 = (1,735/1.14)+(1,519/1.142)+(1,188/1.143)+(1,192/1.144)+(1,251/1.145)
Costs 432 568 597 645 680 4,848
Depreciation 287 305 318 334 340
EBT 908 951 1,050 1,033 1,086
UTV
Less taxes (363) (380) (420) (413) (434)= (1,251*1.035)/(0.14-0.035)
Add back depreciation 287 305 318 334 340 12,331
Less capital expenditures 165 143 180 182 195
Less change in nwc (72) (110) 60 56 64
Add proceeds from asset sales 810 610 - - - PV of UTV at 14%
Unlevered cash flows $1,735 $1,519 $1,188 $1,192 $1,251 = 12,331/1.145
6,404

Interest payments $1,140 $1,100 $1,180 $1,150 $1,190
Interest tax shield 456 440 472 460 476 PV of tax shields 2007-2011 at 12.5%
= (456/1.125)+(440/1.1252)+(472/1.1253)+(460/1.1254)+(476/1.1255)
1,636
UCF $1,735 $1,519 $1,188 $1,192 $1,251
Terminal value: (3.5% growth after 2011)
Unlevered terminal value 12,331 PV of tax shield in TV at 8%
Terminal value at target debt 13,619 Rs = R0 + (B/S)(1-tc)(R0-RB)
Tax shield in terminal value 1,288 = 0.14 + (0.25/0.75)(1-0.4)(0.14-0.08)
Interest tax shield $456 $440 $472 $460 $476 0.15

PV of UCF 2007-2011 at 14% 4,848
PV of UTV at 14% 6,404 RWACC = 0.75(0.15) + 0.25(0.08)(1-0.4)
Total unlevered value 11,252 0.12

PV of tax shields 2007-2011 at 12.5% 1,636
PV of tax shield in TV at 8% 877 = 1,190(1.03)/(0.12 - 0.03)
Total value of tax shields 2,512 13,619
Total value 13,765
Less value of assumed debt0= 13,619 - 12,331
Value of equity 13,765...
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