Triton Private Equity Fund is considering the purchase of 100% of the common equity of Cebec Social Media, a young growing company. After much study, Triton management projects Cebec will produce the following accounting results for the next three years (in millions). Year 1, 2, 3, TV. Revenue: 20.0, 30.0, 40.0. Cash Operating Expenses: 17.0, 25.0, 32.0. Depreciation Expense (non-cash): 1.0, 1.5, 2.0. Increase in working capital: 0.5, 1.5, 1.5. Capital expenditures: 1.0, 1.0, 2.0. Corporate income tax rate: 30%, 30%, 30%. Debt principal repayment: 0.0, 0.5, 1.0. Interest expense on total debt: 0.0, 0.8, 0.6.  

A. What is the free cash flow to equity (FCFE) in each year? Triton will sell the equity of Cebec at the end of year 3 for $45.0 million. ( so $45 million is the terminal value). FCFE is the amount of cash flow after debt principal payments.  

B. In your opinion, what is a reasonable price to pay for the equity of Cebec? 

Answer rating: 100% (QA)

A To calculate FCFE we need to start with net income and make adjustments for noncash expenses and c... View the full answer