a12sealedair - Autumn 2011 Managerial Finance Prof...

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Autumn 2011 Managerial Finance Prof. Francisco Pérez-González Sealed Air Corporation’s Leveraged Recapitalization Read and prepare: Sealed Air Corporation’s Leveraged Recapitalization (reader). Big picture question: What are the benefits of Sealed Air’s leveraged recapitalization? Questions: 1. Estimate the potential tax benefits (net of fees) of the proposed transaction (at the time of announcement) using the Adjusted Present Value (APV) approach. 2. Can shareholders capture the increased value that results from using leverage? Doesn’t adding debt reduce the value of equity? 3. What other costs or benefits of leverage might there be? Can leverage change the way a firm is managed? If so how? Hint: To estimate the tax benefits of debt using APV you will need to identify: (a) the initial increase in net-debt (debt minus cash), (b) the relevant tax rate, (c) the relevant interest rate on debt, and (d) the debt repayment schedule. Information on the new debt (amounts and rates) is contained in page 6.
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