Unlevered Beta, Unlevered Firm Value, and Post-LBO Firm Value

Learning Goal: I’m working on a business case study and need a sample draft to help me learn.

Appendix 7 of Masonite (B) shows the Beta for Masonite. This is Masonite’s Levered Beta.

  • Using the stock price in Appendix 7, calculate the Market Value of Equity (MVE) for Masonite. MVE = Share Price x Number of Shares.
  • Compute total Debt as the sum of Short-Term Debt, Long-Term Debt, and Current Portion of Long-Term Debt. This information is in Appendix 1 (use the most recent Balance Sheet).
  • Using the formula for bL = bU [ 1 + (1 – T)D/E ], calculate Masonite’s Unlevered Beta.
  • Calculate the Cost of Unlevered Equity by using the Unlevered Beta and the CAPM equation. You can get the information on Risk-Free Rate and the Market Risk Premium from Appendix 7.
  • Based on the forecast of the Free Cash-Flow (FCF) in the next 5 years, calculate the Unlevered Value of Masonite.
  • What is your estimate of the Present Value of the Tax Advantage of Debt after the LBO?
  • What is your estimate of the Post-LBO Value of Masonite?

Note that Masonite has stock options, RSUs, and DSUs in addition to shares outstanding. This information is on page 6 of Masonite (B). Add up all of these numbers to get a total “diluted” number of shares when you calculate MVE.

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