DuPont Corporation: Sale of Performance Coatings

Study Questions:

1. What are some of the important features of APV, and why is it a useful approach for valuing an LBO?

2. Working from case Exhibit 9, estimate the increase in value a PE sponsor can obtain assuming:

a) 5% revenue growth per annum (vs. 4%) in each of the next five years along with improving operating margins to 12% (vs. 10%).

b) Assume part a. and that the division can be sold for 7.5x EBITDA in five years.

c) Assume part a. and b. and that debt financing of 5.0x forward EBITDA can be obtained. Assume that all cash is available to pay down the LBO debt and that after five years, the firm will revert to an all equity capital structure.

3. If a PE sponsor has a target levered return of 20% (before their fees), what is the maximum enterprise value it can offer for DPC under parts b and c above?

4. What minimum bid should Ellen Kullman set if she chooses to sell DPC?

Attachment:- Assignment.rar