Valuing buyout investments Alternative Investments: Week 5 Marked Assessment This problem set is designed to help you understand the way buyout deals are valued, as well as giving you practice in...

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Answered Same DayOct 06, 2021

Answer To: Valuing buyout investments Alternative Investments: Week 5 Marked Assessment This problem set is...

Sweety answered on Oct 08 2021
150 Votes
INTRODUCTION
In this case Berkshire partners is a Boston based private equity firm, it is considering bidding for carters. Carter is a highly competitive apparel industry. It became the largest brand manufacturer of toddler and baby apparel in the United State
s and also a leading maker of young children clothing. Its market is divided in 5 segments newborn, baby sleep wear, baby playwear, young children’s sleepwear and young children’s playwear. The auction is conducted by Goldman Sachs (GS) and it is also involve din providing staple on financing facility. A five member team is to be formed for the process of bidding. The given question from 1 to 13 is based on calculation of carters enterprise based on management projection and historical values. In this it is to be analyzed whether bid should be made for Carter or not. There is detail given in the PDF file provided as the question. Exhibit 1 to exhibit 8 contains all the details which is required to provide answer to the question 1 to 18. The answer is based on the calculation done in the excel sheet which is attached with this word file. The excel sheet contains all the calculation in detail. The solution to each question is provided as mentioned below:
ANSWER TO QUESTION 1
Carter’s after tax cash in 2006 based on the forecast provided by Carter’s management is Seventy million seven hundred and ten thousand that is, 70.71 million.    
ANSWER TO QUESTION 2
Discount rate is the rate used for determining present vale of cash flow that will arise in future. Equity discount rate is the cost by which business activity is financed through equity capital. The formula for calculating equity discount rate is given as below
Equity discount rate=Risk free rate + Average Equity Beta * Equity Market Premium
The detailed calculation of equity discount rate is mentioned in the excel sheet attached with this word file. Based on the calculation done there Equity discount rate in this case is 18.7%
ANSWER TO QUESTION 3
NPV of caster’s cash flows from 2002 to 2006 is shown in the table given below. This NPV is based on management’s forecast financials and it is also assumed that Carter is financed only through equity. Given below is just the summary detailed calculation is given in the excel sheet attached with this word file.
    PARTICULARS
    2002
    2003
    2004
    2005
    2006
    Total
    NPV
    23.1
    25.9
    29.8
    32.1
    35
    146
ANSWER TO QUESTION 4
The value of a business or project beyond the forecast period during which future cash flow can be estimated is called terminal value. In this case one assumption is made which is that business will grow at a growth rate, which is fixed, forever after the period of...
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