Sean John is considering a leveraged recapitalization and wantsto know the value of the firm subsequent to the recap. After therecapitalization they will have $41.6 million in perpetual parvalue debt with a 6% coupon.They are currently forecasted toproduce free cash flows of $3.1 million, $7.5 million, and $13.5million in each of the next three years. After year three, theunlevered cash flows are expected to grow at a constant rate of 3%per year. The marginal corporate tax rate is 40%. Sean Johnâsclosest competitor, a pure-play firm in the same business withsimilar risk, profitability, and growth prospects, has adebt-to-equity ratio of 0.5 and an equity beta of 1.25. Ten-yeartreasuries currently yield 2.3% and the expected return on theS&P 500 is 10.0% per annum. Using the information aboveregarding Sean John and if you discount the interest tax shields atthe unlevered cost of equity, what is the value of the enterprise(market value of assets) using the APV method? Enter your responsein millions, rounded to two decimal places.
Sean John is considering a leveraged recapitalization and wantsto know the value of the firm subsequent to the recap. After therecapitalization they will have $41.6 million in perpetual parvalue debt with a 6% coupon.They are currently forecasted toproduce free cash flows of $3.1 million, $7.5 million, and $13.5million in each of the next three years. After year three, theunlevered cash flows are expected to grow at a constant rate of 3%per year. The marginal corporate tax rate is 40%. Sean Johnâsclosest competitor, a pure-play firm in the same business withsimilar risk, profitability, and growth prospects, has adebt-to-equity ratio of 0.5 and an equity beta of 1.25. Ten-yeartreasuries currently yield 2.3% and the expected return on theS&P 500 is 10.0% per annum. Using the information aboveregarding Sean John and if you discount the interest tax shields atthe unlevered cost of equity, what is the value of the enterprise(market value of assets) using the APV method? Enter your responsein millions, rounded to two decimal places.
