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You are given the following assumptions for Firm A. Assume that the firm is going into leveraged buyout and the market value debt and equity levels are shown below. Assume from year 6 and onward, the debt level remains constant at $40 million, and equity level constant at $120 million, cost of debt (kd) constant at 6%, and levered cost of equity (ke) constant at 16%. Use the Adjusted Present Value model and the appropriate assumption for ktxa to find the value of firm (V). (Round to 4 decimal places, e.g., 1.2345.)

Year 1-5 (%) ROIC = 20; Year 6 and after (%) ROIC = 12

Year 1-5 (%) Growth = 16; Year 6 and after (%) Growth = 3

Year 1-5 (%) WACC = 14; Year 6 and after (%) ROIC = 12

Given 5-year Forecasting Horizon;

Corporate tax rate = 38%,

NOPLAT at time 1 = $115M,

Depreciation at time t = NOPLAT at time t 12%, and Net investment at time t = (gt/ROICt) NOPLATt + Depreciationt

Year 0: Debt $40M; Equity $120M; kd 8%; ke 18%

Year 1: Debt $80M; Equity $120M; kd 14%; ke 24%

Year 2: Debt $70M; Equity $120M; kd 12%; ke 23%

Year 3: Debt $60M; Equity $120M; kd 10%; ke 22%

Year 4: Debt $50M; Equity $120M; kd 9%; ke 20%

Year 5: Debt $40M; Equity $120M; kd 8%; ke 18%

Year 6: Debt $40M; Equity $120M; kd 6%; ke 16%

a. Calculate FCF for years 1 ~ 5, respectively.

b. Calculate the value of tax shields (Vtxa).

c. Find the unlevered cost of equity (ku).

d. Find the value of firm (V) based on the APV model.

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