*PLEASE ONLY ANSWER 2.5.*

**2.4 IS ADDED FOR REFERENCE ONLY** THANK YOU :)

Problem 2.4 . GCL Industries is an industrial conglomerate undergoing restructuring. As part of its restructuring program GCL is considering the sale of its low-growth Fleet Meat Packing unit. Fleet is in the high volume-low margin meatpacking business. Fleets volume sales are not expected to increase in the future and the long-term growth of dollar sales is projected at 3% per year. Operating projections and other pertinent data are presented below. Estimate the price GCL may get for Fleet as of January 1, 2008. Projections for 2.4 Fleet Meat Packing Co., 2008-2012 Projection Sales EBITDA margin Depreciation Increase in deferred taxes CAPEX + Net WC increase Actual 2007 2223.2 2.55% 29.0 0.5 38.7 2008 2245.6 2.57% 32.6 1.6 41.8 2009 2284.2 2.65% 342 22 42.2 Forecast 2010 2308.0 2.71% 32.9 2.9 33.4 2011 2550.0 2.71% 32.0 2.5 32.5 2012 2616.7 2.71% 31.5 2.5 32.5 Corporate tax rate: 38% GCL estimates that the buyer can finance the acquisition with 50% debt that can be raised at 7%. The beta of companies in Fleet's industry with similar capital structures is 1.32. The yield on 10-year Treasury notes is 4.5%, the equity risk premium is about 4.4% and the micro-cap size premium is about 3.9%. Problem 2.5 . A prospective buyer of Fleet Meat Packing Co. would like to finance the acquisition entirely with equity capital and not use debt financing in the future. The buyer would like to determine the maximum price to pay for Fleet. The buyer has estimated that the beta coefficient in the absence of debt would be 0.66 and that the cost of equity should allow for a micro-cap size premium equal to 3.9%. Furthermore, the riskless rate is 4.5%, the equity premium is 4.4%, and the corporate tax rate is 38%. Value fleet under this financial structure. Is the result different from that obtained in problem 2.4? Why