Whispering Pines, Inc. (WPI) is considering a leveraged recapitalization and wants to know the value of the firm subsequent to the recap.
After the recapitalization they will have $23.8 million in perpetual par value debt with a 6% coupon.They are currently forecasted to produce free cash flows of $2.8 million, $7.7 million, and $10.9 million in each of the next three years. After year three, the unlevered cash flows are expected to grow at a constant rate of 3% per year. The marginal corporate tax rate is 40%.
WPI’s closest competitor, a pure-play firm in the same business with similar risk, profitability, and growth prospects, has a debt-to-equity ratio of 0.5 and an equity beta of 1.25. Ten-year treasuries currently yield 2.3% and the expected return on the S&P 500 is 10.0% per annum.
Using the information above regarding Whispering Pines and if you discount the interest tax shields at the unlevered cost of equity, what is the value of the enterprise (market value of assets) using the APV method? Enter your response in millions, rounded to two decimal places.