In late summer 2005, Carlyle Group, a prominent private equity firm, must finalize the terms of a
Question:
In late summer 2005, Carlyle Group, a prominent private equity firm, must finalize the terms of a bid to purchase the Hertz Corporation. Your job is to produce a report for the members of the Carlyle buyout consortium that details the valuation of Hertz and the returns on Carlyle's equity investment if it wins the bid.
What is the market-required rate of return for this investment? Is a 20% target return reasonable? (Hint: Calculate the equity beta of Hertz using its leverage ratio (D/(D+E)) at initiation of the LBO. Assume that the value of Hertz assets (D+E) around the LBO is $14.8 billion, which is the total payment for assets number from Exhibit 5. The case states that the asset beta of Hertz is 0.6. Assume that the market risk premium is 5.5 percent and the risk-free rate is 4.26 percent.)
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill