Using the principles and tools outlined in the textbook, complete a Capital Structure Analysis, Capital Budgeting Analysis and form Funding Growth Strategies for the Firm (see attached).

You have been asked to evaluate a potential acquisition of a smaller privately owned competitor. The acquisition candidate produces an EBITDA of 10% of your current EBITDA and is offered to your firm at a price of multiple of 8 times EBITDA. Assume the following: Current debt costs you 8% and you can raise additional debt at this rate today. The loan is to be amortized over 7 years. Current return on equity is 15% Current WACC is 10% Tax rate is 30% (constant) 80% of the purchase price is considered depreciable assets to be depreciated over ten years on a straight-line basis with no residual values. Residual value for this operation is to be 2x current EBITDA in year ten.

Your Firm's Current EBITDA: Acquisition Targe's EBITDA: NOTE: Problem gives you cost of debt andequity and WACC $ 4,521 2 Step 1 10% $ 452 Read instructions as rates are given to you You will be required to figure out what % is equity vs debt[back into these numbers!). 7 Step2 Componen Amounts Similar calculations as in WACC assignments Equity in deal Debt for deal 11 Step 3 Calculate Loan Payment schedule [you will need"P" and"T for eachyr Create A loan amorization schedule for you loa My preference is that you do this yourself but you may see sheet below 15 Step 4 Calculate depreciation Straight forward calculation (and all pun intended here! Calculate amortization [of goodw ill..f goodwill was created in the transaction). Goodwill is created if your purchase price for the entity is higher than the value of the assets purchased. For this analysisJ amortize your goodwill on a straight-line basis for 5 yrs 21 ) This step is not the current "law in the land"...but worthwile exercise Goodwill is the amount one pays a Buy a company for $100; assets include one machine worth $70 and a 3 yr contract to deliver parts bove the actual value of asset Contract is actually a piece of paper.. .sogoodwill is created in this eHample 24 25 Step 5 Assume the entity survives in perpetuity; however, you are to assume the values of yrs 10 to infinity are incorporated in a 2 EBITDA value in yr 10 aluation Trick is to put some number (28here) to represent all future activities At some high (but relatively low] discount rates, years 11 through infinity truly represent pennies in a PV calculation. 27 29 Step 6 Create an Income statement... .then extend this to an After Tax Cash flow statement 33 34 35 All numbers below are made up as an eHample only) Purchase Price EBITDA (no Growt 452.1 452.452.1 452.1 452. 452.1 452 452.1 452. 452.1 Int Exp 37 Amort EHp Gross Profit Net Income 42 43 After Tax Analysis: 44 Net Income 45 Add: Dep 46 Add: Amort 47 Less: Principal 48 Less: CapEx assume $0 49 After Tax Cash flow= Your Firm's Current EBITDA: Acquisition Targe's EBITDA: NOTE: Problem gives you cost of debt andequity and WACC $ 4,521 2 Step 1 10% $ 452 Read instructions as rates are given to you You will be required to figure out what % is equity vs debt[back into these numbers!). 7 Step2 Componen Amounts Similar calculations as in WACC assignments Equity in deal Debt for deal 11 Step 3 Calculate Loan Payment schedule [you will need"P" and"T for eachyr Create A loan amorization schedule for you loa My preference is that you do this yourself but you may see sheet below 15 Step 4 Calculate depreciation Straight forward calculation (and all pun intended here! Calculate amortization [of goodw ill..f goodwill was created in the transaction). Goodwill is created if your purchase price for the entity is higher than the value of the assets purchased. For this analysisJ amortize your goodwill on a straight-line basis for 5 yrs 21 ) This step is not the current "law in the land"...but worthwile exercise Goodwill is the amount one pays a Buy a company for $100; assets include one machine worth $70 and a 3 yr contract to deliver parts bove the actual value of asset Contract is actually a piece of paper.. .sogoodwill is created in this eHample 24 25 Step 5 Assume the entity survives in perpetuity; however, you are to assume the values of yrs 10 to infinity are incorporated in a 2 EBITDA value in yr 10 aluation Trick is to put some number (28here) to represent all future activities At some high (but relatively low] discount rates, years 11 through infinity truly represent pennies in a PV calculation. 27 29 Step 6 Create an Income statement... .then extend this to an After Tax Cash flow statement 33 34 35 All numbers below are made up as an eHample only) Purchase Price EBITDA (no Growt 452.1 452.452.1 452.1 452. 452.1 452 452.1 452. 452.1 Int Exp 37 Amort EHp Gross Profit Net Income 42 43 After Tax Analysis: 44 Net Income 45 Add: Dep 46 Add: Amort 47 Less: Principal 48 Less: CapEx assume $0 49 After Tax Cash flow=