题目
题目

SP25-BL-BUS-F402-4299 LBO Practice

单项选择题

KKR is contemplating a leveraged buyout of Tempur-Pedic International (TPX). TPX’s 15 million shares currently trade at $25/share, and the company has $60 million in long-term debt. KKR is offering $35/share to existing shareholders and plans to finance the buyout using $500 million of debt with an interest cost of debt, rd, equal to 12% and $25 million of equity. The interest expenses (in millions) for both the old and new debt are given below. [KKR will be responsible for both the old and new debt after the deal.] After increasing the incentives of the managers with increased equity stakes, KKR projects that TPX will generate free cash flows of $84 million next year (t=1) and will remain the same in nominal terms thereafter. KKR plans to sell TPX after 5 years (t=5), and anticipates the new owners will maintain a target D/V ratio of 0.30 following the sale. With this D/V of 0.30, TPX’s cost of debt will drop back to 9%. In your below analysis of this LBO, you should assume that TPX’s unlevered cost of equity, ra, equals 14% and use the Miles-Ezzell WACC. You should also assume the corporate tax rate faced by TPX is 35%.  Year                                                        1        2       3       4       5 Interest expense (Old debt)                5        5       5       5       5 Interest expense (New debt)             60      60     60     60     60 What is the base-case NPV of TPX? (i.e. what is the unlevered NPV of TPX)

选项
A.400
B.500
C.600
D.700
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思路分析
We start by identifying the base-case unlevered situation for TPX. - The problem states that TPX will generate free cash flows (FCF) of 84 million next year (t = 1) and that these FCFs stay the same in nominal terms thereafter (i.e., no growth, g = 0). - The unlevered cost of equity provided is ra = 14%. In an unlevered (all-equity) framework, the appropriate discount rate for the firm’s FCFs is ra, since there is no debt to a......Login to view full explanation

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