Calculate the value of tax shields (Vtxa) 2.Find the value of unlevered cost of Equity (Ku) You

Calculate the value of tax shields (Vtxa)

2.Find the value of unlevered cost of Equity (Ku)

 

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You are given the following assumptions for Firm A. Assume that the firm is going into leveraged buyout and the market value debt and equity levels are shown below. Assume from year 6 and onward, the debt level remains constant at $40 million, and equity level constant at $120 million, cost of debt (ka) constant at 6%, and levered cost of equity (ke) constant at 16%. Use the Adjusted Present Value model and the appropriate assumption for kixa to find the value of firm (V). (Round to 4 decimal places, e.g., 1.2345.) (30 points total) ROIC Growth (g) WACC Given 5-year Forecasting Horizon, Corporate tax rate = 35%, NOPLAT at time 1 = $55M, Year 1-5 (%) 20 16 14 Depreciation at time t = NOPLAT at time t x 10%, and Net investment at time t = (g/ROIC) Debt (SM) Equity (SM) Kd (%) Ke (%) Year 0 Year 1 40 80 120 120 8 14 18 24 NOPLAT,+ Depreciation Year 2 Year 3 Year 4 70 50 120 120 12 23 60 120 10 22 9 20 Year 6 and after (%) 12 3 12 Year 5 Year 6 40 40 120 120 6 16 2 8 18 You are given the following assumptions for Firm A. Assume that the firm is going into leveraged buyout and the market value debt and equity levels are shown below. Assume from year 6 and onward, the debt level remains constant at $40 million, and equity level constant at $120 million, cost of debt (ka) constant at 6%, and levered cost of equity (ke) constant at 16%. Use the Adjusted Present Value model and the appropriate assumption for kixa to find the value of firm (V). (Round to 4 decimal places, e.g., 1.2345.) (30 points total) ROIC Growth (g) WACC Given 5-year Forecasting Horizon, Corporate tax rate = 35%, NOPLAT at time 1 = $55M, Year 1-5 (%) 20 16 14 Depreciation at time t = NOPLAT at time t x 10%, and Net investment at time t = (g/ROIC) Debt (SM) Equity (SM) Kd (%) Ke (%) Year 0 Year 1 40 80 120 120 8 14 18 24 NOPLAT,+ Depreciation Year 2 Year 3 Year 4 70 50 120 120 12 23 60 120 10 22 9 20 Year 6 and after (%) 12 3 12 Year 5 Year 6 40 40 120 120 6 16 2 8 18

Answer rating: 100% (QA)

To calculate the value of tax shields Vtxa we need to multiply the debt level by the corporate tax r... View the full answer