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The owner of Big Boy flea market, lewis redding,




The owner of Big Boy flea market, lewis redding, passed away on december 30 2009. His 100% ownership interest in BBFM became part of his estate, on which his heirs must pay estate taxes. The IRS has hired a valuation expert, who has submitted a report stating that the business was worth approximately $20 million at the time of Mr. Redding's death. Mr. Redding's heirs believe the IRS valuation is too high and have hired you to perform a separate valuation analysis in hopes of supporting their position.;a.) Estimate the firm free cash flows for 2010-2014, where the firms tax rate is 25%. capital expenditures are assumed to equal depreciation expense, and there are no changes in net working capital over the period.;b.) Value BBFM using the traditional WACC model and the following information;i. BBFM'S cost of equity is estimated to be 20% and the cost of Debt is 10%.;ii. BBFM'S management targets its long-term debt ratio at 10% of enterprise value.;iii. After 2014, the long-term growth rate in the firm's free cash flow will be 5% per year.;Attachment Preview;BBFM.xlsx Download Attachment;Given;Corporate tax rate;Capex (2010-2014) equals depreciation expense;Cost of debt financing;Required return on equity;Targed debt to value ratio;Terminal period growth rate in FCFs


Paper#27140 | Written in 18-Jul-2015

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