Considering leveraged recapitalization

Assignment Help Financial Management

Reference no: EM131914059

Whispering Pines, Inc. (WPI) is considering a leveraged recapitalization and wants to know the value of the firm subsequent to the recap.

After the recapitalization they will have $23.8 million in perpetual par value debt with a 6% coupon.They are currently forecasted to produce free cash flows of $2.8 million, $7.7 million, and $10.9 million in each of the next three years. After year three, the unlevered cash flows are expected to grow at a constant rate of 3% per year. The marginal corporate tax rate is 40%.

WPI’s closest competitor, a pure-play firm in the same business with similar risk, profitability, and growth prospects, has a debt-to-equity ratio of 0.5 and an equity beta of 1.25. Ten-year treasuries currently yield 2.3% and the expected return on the S&P 500 is 10.0% per annum.

Using the information above regarding Whispering Pines and if you discount the interest tax shields at the unlevered cost of equity, what is the value of the enterprise (market value of assets) using the APV method? Enter your response in millions, rounded to two decimal places.

Reference no: EM131914059

Questions Cloud

Compare and contrast heterosexist and racist language : Compare and contrast heterosexist and racist language. How are these messages disconfirming? Illustrate instances of such language use in American life.

Explain the motivation for two decisions : Using the economist's model of choice, explain the motivation for two decisions you have made in the past year.

Identify one artist who represents the given style : For each of your five selected styles, identify one artist who represents that style whose studio you will explore in your time travels.

How medical conditions might mimic psychological disorders : Explain actions you might take within your scope of personal competency if you suspect medical condition and why.

Considering leveraged recapitalization : Whispering Pines, Inc. (WPI) is considering a leveraged recapitalization and wants to know the value of the firm subsequent to the recap.

Innovations in intermodal transportation : The US government should be the catalyst for innovations in intermodal transportation. Industry, in a free market economy,

Summarize your understanding of the foundation of the ccss : Part One: First, in one paragraph, summarize your understanding of the foundation of the CCSS for Math and English Arts.

What is the amount of the cash flow from assets : J. Clarkson's High Gear Autowerks has an operating profit of $55,962, What is the amount of the cash flow from assets?

What is the history of that economic system : Discuss some of the challenges you may face in this new environment.What are the cultural, ethnic, social, and educational characteristics?

User Account

All Pages