1.Working from case Exhibit 9, relative to the stand-alone value, perform an APV analysis to estimate the dollar increase in DPC's value if a PE fund can obtain:

a.5% revenue growth per annum (versus 4% growth) in each of the next five years and improve the operating margin to 12% (versus 10%).

b.Assume part a and that the division can be sold at 7.5x EBITDA in five years.

c.Assume part a and part b and that debt financingequal to 6.0x forward EBITDA can be obtained. Assume that all cash available to pay debt each year (i.e. residual cash flow) is used to pay down the LBO debt and that, after five years,the firm will revert to an all-equity firm.

d. What are some of the advantages and risks of using leverage to finance an all-equity firm?