the private equity firm kevin's parnters is looking fat a leveraged buyout opportunity on the wendy's chain . wendy's today has a capital structure of 75% equity, 25% debt its free cashflow last year was $1 million and it is expected to grow at a cnstan rate of 8% per year all f it assets are operating assets. its WACC equals 14% . if kevin invest in the deal (it would acquire 100% of the company) it plans to exit at the end of year 5, at which point wendy's capital structure will be 90% equity and only 10% debt and its enterprise vallue will be estomated at 20 times its fcf in year 5 all interim cash flows wil be used to pay down debt . kevin has a 35% minimum IRR hurdle rate 1. what is wendy's value of equity today? 2. what wil be wendy's value of equity at the end of year 5

Machinal Corp. is an all-equity firm with 22,000 shares of stock outstanding with a market price of $27 a share. The current cost of equity is 12 percent, and the tax rate is 21 percent. The firm is considering adding $225,000 of debt with a coupon rate of 6.25 percent to its capital structure. The debt will sell at par. What will be the levered value of the equity? Also, briefly discuss the important concept of leverage to a company.

Landman Corporation (LC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of .78. It’s considering building a new $66.8 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $7.93 million in perpetuity. There are three financing options: A new issue of common stock: The required return on the company’s new equity is 15.2 percent. A new issue of 20-year bonds: If the company issues these new bonds at an annual coupon rate of 7.1 percent, they will sell at par. Increased use of accounts payable financing: Because this financing is part of the company’s ongoing daily business, the company assigns it a cost that is the same as the overall firm WACC. Management has a target ratio of accounts payable to long-term debt of .10. (Assume there is no difference between the pretax and aftertax accounts payable cost.) If the tax rate is 23 percent, what is the NPV of the new plant? Note: A negative answer should…

Systems has 6.45 billion shares outstanding and a share price of $17.25. Quisco is considering developing a new networking product in-house at a cost of $497 million. Alternatively, Quisco can acquire a firm that already has the technology for $899 million worth (at the current price) of Quisco stock. Suppose that absent the expense of the new technology, Quisco will have EPS of $0.828. a. Suppose Quisco develops the product in-house. What impact would the development cost have onQuisco's EPS? Assume all costs are incurred this year and are treated as an R&D expense, Quisco's tax rate is 40 %, and the number of shares outstanding is unchanged. b. Suppose Quisco does not develop the product in-house but instead acquires the technology. What effect would the acquisition have on Quisco's EPS this year? (Note that acquisition expenses do not appear directly on the income statement. Assume the firm was acquired at the start of the year and has no revenues or expenses of its own, so that the…