As a business valuation expert, you have been allotted with the project to value the company...

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As a business valuation expert, you have been allotted with the project to value the company "Top Car S.A.", a used car vehicle vendor that operates a sizable auto spare parts division. The table beneath gives an outline of key financial figures for the two divisions: Spare Used Car Parts Beta coefficient 1.68 1.96 Debt to Capital Ratio (Market) Invested Capital (in millions) Revenues (in millions) After-tax cost of debt 50% 50% €700 €900 €1,700 €1,400 6% 6% After-tax Operating Income next year (in millions) Cost of equity Market risk premium Tax rate €100 €140 13.08% 14.76% 6% 40% Risk-free rate 3% Net debt (market value) €1.2 billion 1. Estimate the value of equity for Top Car S.A., assuming that both divisions can maintain a growth rate of 3% to perpetuity, the company can continue to generate the current return on invested capital, and that Top Car's operating mix remains unchanged. 2. The company's top management is assessing the possibility to sell the used car division for an amount equivalent to Top Car's current debt outstanding. Following the divestiture of the used car business, the company is planning to use the proceeds from this sale to pay-off all debt obligations and to set as a goal to increase the firm's after-tax operating margin to 15%. According to the company's business analysts the 15% increase in terms of after-tax operating margin can be achieved through raising the prices of the spare parts business. What is the value of Top Car's equity after the divestiture of the used car business assuming that the company continues to grow by 3% per annum forever? What is the change in the company's value of equity after the sale of the used car business? As a business valuation expert, you have been allotted with the project to value the company "Top Car S.A.", a used car vehicle vendor that operates a sizable auto spare parts division. The table beneath gives an outline of key financial figures for the two divisions: Spare Used Car Parts Beta coefficient 1.68 1.96 Debt to Capital Ratio (Market) Invested Capital (in millions) Revenues (in millions) After-tax cost of debt 50% 50% €700 €900 €1,700 €1,400 6% 6% After-tax Operating Income next year (in millions) Cost of equity Market risk premium Tax rate €100 €140 13.08% 14.76% 6% 40% Risk-free rate 3% Net debt (market value) €1.2 billion 1. Estimate the value of equity for Top Car S.A., assuming that both divisions can maintain a growth rate of 3% to perpetuity, the company can continue to generate the current return on invested capital, and that Top Car's operating mix remains unchanged. 2. The company's top management is assessing the possibility to sell the used car division for an amount equivalent to Top Car's current debt outstanding. Following the divestiture of the used car business, the company is planning to use the proceeds from this sale to pay-off all debt obligations and to set as a goal to increase the firm's after-tax operating margin to 15%. According to the company's business analysts the 15% increase in terms of after-tax operating margin can be achieved through raising the prices of the spare parts business. What is the value of Top Car's equity after the divestiture of the used car business assuming that the company continues to grow by 3% per annum forever? What is the change in the company's value of equity after the sale of the used car business?

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