Lecture_21_ - 2-1Lecture#21THE LEVERAGED BUYOUT OF CHEEK...

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Unformatted text preview: 2-1Lecture#21THE LEVERAGED BUYOUT OF CHEEK PRODUCTS, INC.2-2Which method to use?In this leveraged buyout, the debt level of the company changes through time, therefore, the APV method is appropriate for evaluating the LBO. The we will make the following calculations :Step 1: Calculating the present value of unlevered cash flows for the first 5 years. Step 2: Calculating the present value of unlevered cash flows beyond the first 5 years. Step 3: Calculating the present value of interest tax shield for the first 5 years. Step 4: Calculating the present value of interest tax shields beyond the first 5 years.2-3Income Statement w/o interest20072008200920102011Sales$2,115.00$2,371.00$2,555.00 $2,616.00 $2,738.00Costs562.00738.00776.00839.00884.00Dep373.00397.00413.00434.00442.00EBT$1,180.00$1,236.00$1,366.00 $1,343.00 $1,412.00Tax$472.00$494.40$546.40$537.20$564.80Net income$708.00$741.60$819.60$805.80$847.20Capital expenditures$215.00186.00234.00237.00234.00Change in NWC(94.00)(143.00)(143....
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Lecture_21_ - 2-1Lecture#21THE LEVERAGED BUYOUT OF CHEEK...

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