In-Class Project 2: Due 4/13/2019 Your Name: Valuation of The Leveraged Buyout (LBO) of RJR Nabisco 1. Cash Flow Estimates
In-Class Project 2: Due 4/13/2019 Your Name: Valuation of The Leveraged Buyout (LBO) of RJR Nabisco 1. Cash Flow Estimates
In-Class Project 2: Due 4/13/2019 Your Name: Valuation of The Leveraged Buyout (LBO) of RJR Nabisco 1. Cash Flow Estimates
3. Other information
Cost of asset (ra) 14%
Cost of debt (rd) 13.50%
Current debt level ($ million) 5,000
Number of shares outstanding (million) 229
I. Estimate VU
Relative year 1 2 3 4
Discount Final Cash flow ($ million) 4,740.53 3,303.79 1,455.04 1,373.03
VU ($ million) 24,428.87
II. Estimate PV(TS)
Relative year 1 2 3 4
Discounted tax shield cash flow ($ million) 1,013.71 918.21 833.88 772.19
PV(TS) ($ million) 6,341.19
III.
Value of the firm [V] ($ million) 30,770.05
Equity value [E] ($ million) 25,770.05 E
Price per share [P] ($) 112.53
12
Sensitivity analysis
10
Report the price per share if growth rate of FCFF after 1993 is estimated to be:
Growth rate of FCFF after 1993 Price Estimate
112.532988106
8
0%
1%
2%
Price
6
3%
4%
5%
4
6%
7%
8%
2
Draw the graph of estimated price per share vs growth rate below:
0
0% 1%
1993
4310
475
551
250
1993 1994
5 6
2,518.60 2,594.16
1993 1994
3,483.00 1,215.00
1,345.72 413.10
5 Terminal value
1,308.08 12,248.40
5 Terminal value
714.46 2,088.75
10
8
Price
0
0% 1% 2% 3% 4% 5% 6% 7% 8%
Grow Rate
Texas Instrument's Projected CFs ($ million)
Year 1 2 3 4
Revenues 6 6 6 6
Cost 2 2 2 2
EBIT (Revenue - Cost) 4 4 4 4
Depreciation 3 3 3 3
Change in working capital 1 1 2 0