Question 1: Using the assumptions for ValueCo below, determine the weighted average cost of capital for ValueCo.
| Assumptions |
|
| Debt to total capitalization |
50% |
| Cost of debt |
6.00% |
| Tax rate |
40% |
| Risk-free rate |
0.50% |
| Market risk premium |
5% |
| Size premium |
2% |
| Unlevered beta |
1.6 |
Question 2: Using the assumptions for ValueCo below, determine the implied share price for ValueCo.
| Assumptions |
|
| Terminal Year (year 5) EBITDA |
800 |
| Exit multiple |
8.5 |
| WACC(weighted average cost of capital) |
10% |
| Cumulative present value of free cash flow |
1500 |
| Total debt |
1000 |
| Cash and cash equivalents |
200 |
| Fully diluted shares outstanding |
100 |
Question 3: What is discounted cash flow analysis? Analyse the benefits of using discounted cash flow analysis.
Question 4: What does accretion/dilution analysis measure? Outline the key drivers in accretion/dilution analysis.
Question 5: Briefly discuss the key drivers of IRR (Internal Rate of Return) in leveraged buyout analysis.