A regional restaurant chain, Club Finance Rocks (CFR), is considering purchasing a smaller chain, AccountingIsOkToo Sandwiches...

A regional restaurant chain, Club Finance Rocks (CFR), is considering purchasing a smaller chain, AccountingIsOkToo Sandwiches (AIOT). The following post-merger data for the AIOT is projected. The values below are in millions. After the fourth year, the free cash flows and the tax shields will both grow at a constant rate of 4%. AIOT has $50 million of debt and $60 million of non-operating assets. Current stock price of the AIOT is $16 per share, with 12 million shares outstanding.

	Year 0	Year 1	Year 2	Year 3	Year 4
EBIT		$32	$33	$37	$38
Tax Expense		$3	$4	$4	$5
Total Operating Capital	$16	$23	$32	$38	$45
Interest Expense		$12	$14	$17	$20

Question: Assuming that the unlevered cost of equity is 15%, what is the unlevered value of operations?

	A.	$189.09 million
	B.	$156.33 million
	C.	$421.04 million
	D.	$207.42 million
	E.	$312.69 million

Solutions

Expert Solution

we wont consider interest expense and value of debt and Non operating assets in calculating Unlevered value of Operations

Please dont forget to upvote

jeff jeffy answered 1 year ago

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