题目
单项选择题
Blackstone is contemplating a leveraged buyout of MGM Mirage. MGM’s 1.2 billion shares currently trade at $11/share, and the company has $12 billion in long-term debt, $2 billion in excess cash, and $3 billion in short-term liabilities that are due immediately. Blackstone is offering $18/share to existing shareholders and plans to finance the buyout using $20.6 billion of debt to with an interest cost of debt, rd, equal to 13%, and $2 billion of equity financing. The interest expenses (in billions) under the buyout plan are reported separately for old and new debt below. After increasing the incentives of the managers with increased equity stakes in the firm, Blackstone projects that MGM will generate free cash flows of $3 billion next year (t=1) and that these cash flows will grow at 5% a year thereafter. Blackstone plans to sell MGM after 4 years (t=4), and anticipates the new owners will maintain a target D/V ratio of 0.50 following the sale. With this D/V of 0.50, MGM’s cost of debt will drop back to 8%. In your below analysis of this LBO, you should assume that MGM’s unlevered cost of equity, ra, equals 15%. You should also assume the corporate tax rate faced by MGM is 35%. Please express all values in billions of dollars. Year 1 2 3 4 Interest expense (Old debt) 0.5 0.5 0.5 0.5 Interest expense (New debt) 3.0 3.0 3.0 3.0 What is the base-case NPV of MGM after the LBO (i.e. unlevered value)?
选项
A.40
B.35
C.30
D.25
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To begin, restate the setup in my own words: we are asked for the base-case, unlevered value of MGM Mirage after the LBO, using unlevered free cash flows to the firm (FCFF) and an unlevered cost of equity ra = 15%. The FCFF next year (t = 1) is given as 3 billion, and these cash flows are projected to grow at 5% per year thereafter. The horizon is four years (t = 1, 2, 3, 4), after which we can form a terminal value assuming perpetual growth at 5% and a discount rate of 15% (ra). The tax and debt details don’t affect the unlevered value calculation directly since we’re valuing the firm’s cash flo......Login to view full explanation登录即可查看完整答案
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Blackstone is contemplating a leveraged buyout of MGM Mirage. MGM’s 1.2 billion shares currently trade at $11/share, and the company has $12 billion in long-term debt, $2 billion in excess cash, and $3 billion in short-term liabilities that are due immediately. Blackstone is offering $18/share to existing shareholders and plans to finance the buyout using $20.6 billion of debt to with an interest cost of debt, rd, equal to 13%, and $2 billion of equity financing. The interest expenses (in billions) under the buyout plan are reported separately for old and new debt below. After increasing the incentives of the managers with increased equity stakes in the firm, Blackstone projects that MGM will generate free cash flows of $3 billion next year (t=1) and that these cash flows will grow at 5% a year thereafter. Blackstone plans to sell MGM after 4 years (t=4), and anticipates the new owners will maintain a target D/V ratio of 0.50 following the sale. With this D/V of 0.50, MGM’s cost of debt will drop back to 8%. In your below analysis of this LBO, you should assume that MGM’s unlevered cost of equity, ra, equals 15%. You should also assume the corporate tax rate faced by MGM is 35%. Please express all values in billions of dollars. Year 1 2 3 4 Interest expense (Old debt) 0.5 0.5 0.5 0.5 Interest expense (New debt) 3.0 3.0 3.0 3.0 How much value does Blackstone think will be added via the LBO?
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