Answer for Q 10 of the PINKERTON Case- Positive scenario& 75

Million Debt and 25 Million Equity

Particulars
CF from CPP
[standalone
operationsgiven in
exhibit 3 of
the case]
Add: LTD in
Ex-3 [ as we
shall
subtract LTD
from
enterprise
value to
arrive at the
Equity Value]
LTD adjusted
CF-CPP
Terminal
Value CPP
standalone
CF
Discount
factor
[WACC=12.1
9%]
PV of CFFCPP
EV-CPP alone
Equity ValueCPP

Add: EV of
PinkertonPositive
Scenario
= Value of
New CPP
Less: LTD of
Pinkerton
Equity Value
of New CPP
45% of
100.56
million
Cash
Received

1988
2

1989
2.8

1990
3.1

1991
4.3

1992
4.4

1.1

3.1

3.8

4.1

4.3

4.4

G=5 %
& WACC =
12.19%
0.891

0.794

0.708

0.631

4.4(1.05)/
(0.1219-0.05)
= 4.62/0.0719
=64.26
0.562

2.76

3.02

2.90

2.71

38.59

49.98
46.88[i.e
49.983.1]; here
3.1 is LTD
128.68

175.56
75 million
100.56
45.25
Million $
25 million
$

from the
investor
Value given
up in
equity
transaction

20.25
million $

Negative Scenario & 75 million debt & 25 million equity

Particulars
CF from CPP
[standalone
operationsgiven in
exhibit 3 of
the case]
Add: LTD in
Ex-3 [ as we
shall
subtract LTD
from
enterprise
value to
arrive at the
Equity Value]
LTD adjusted
CF-CPP
Terminal
Value CPP
standalone
CF
Discount
factor
[WACC=12.1
9%]
PV of CFFCPP
EV-CPP alone
Equity ValueCPP

Add: EV of
PinkertonNegative
Scenario

1988
2

1989
2.8

1990
3.1

1991
4.3

1992
4.4

1.1

3.1

3.8

4.1

4.3

4.4

G=5 %
& WACC =
12.19%
0.891

0.794

0.708

0.631

4.4(1.05)/
(0.1219-0.05)
= 4.62/0.0719
=64.26
0.562

2.76

3.02

2.90

2.71

38.59

49.98
46.88[i.e
49.983.1]; here
3.1 is LTD
81.14

= Value of
New CPP
Less: LTD of
Pinkerton
Equity Value
of New CPP
45% of
100.56
million
Cash
Received
from the
investor
Value given
up in
equity
transaction

128.02
75
53.02
23.86

25

-1.14
million $

Value of Equity Claims under 100 Million $ debt option under the
positive scenario = 175.56 Million $

Value of Equity Claims under 100 Million $ debt option under the
negative scenario = 128.02 Million $