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In late 2016, soon after Ferriss return as CEO, the firm receives an unsolicited offer....

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Accounting

In late 2016, soon after Ferriss return as CEO, the firm receives an unsolicited offer. of $210 million for its outstanding equity. If Ferris accepts the offer, the deal would close at the end of 2016. Suppose Ferris believes that Idexo can be sold at the end of 2018 for an enterprise value equal to nine times its final EBITDA. Idexos unlevered cost of capital is 10% (specifically, 10% is the pretax WACC). Based on your forecast of Idexos free cash ow in 2017-2021 in , and its final enterprise value in 2021, estimate the following:

Idexos unlevered value at the end of 2016.

The present value of Idexos interest tax shields in 2017-2021. (Recall that these tax shields are fixed and so have the same risk level as the debt.)

Idexos enterprise value at the end of 2016. (Add the present value of the interest tax shield in (b) to the unlevered value of the firm in (a).)

Idexos equity value today. (Adjust the enterprise value in (c) to reflect the firms debt and excess cash at the end of 2016.)

Based on your analysis, should Ferris sell the company now

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