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revenue growth

tax rate
Mortgage rate
Mortgage for purchase

Discount rate for Leasing
Risk free rate
6.87%
MRP
8%
Beta
1
Re
14.8700%
Rd
8.75%

5%
35%
8.75%
5.75

debt
equity
D/V
E/V
WACC

Cost of leasing
year

1999
0

2000e
1

2001e
2002e
2
3
3.9
4.095 4.29975
0.925 0.962325 1.010441

revenue
lease payement
tax deduction
discounted cost
Total cost of leasing

2003e
4
4.514738
1.060963

2004e
5
4.740474
1.114011

2005e
6
4.977498
1.169712

0.32375 0.336814 0.353654 0.371337 0.389904 0.409399
0.528209 0.482765 0.445324 0.410786 0.378927 0.349539
5.41022

Cost of purchase
year

Purchase price
depreciation
tax deduction
disc.depreciation cost
PV disc.depreciation

1999
0

2000e
1

2001e
2

2002e
3

2003e
4

2004e
5

2005e
6

6.5
0.162
0.0567
0.09204

0.162
0.162
0.162
0.162
0.162
0.0567
0.0567
0.0567
0.0567
0.0567
0.08045 0.070319 0.061464 0.053724 0.046959

0.681382

Mortgage cost
tax deduction
disc.mortgage cost
PV disc.mortgage

0.503125 0.503125 0.503125 0.503125 0.503125 0.503125
0.176094 0.176094 0.176094 0.176094 0.176094 0.176094
0.28585 0.249854 0.218391 0.19089 0.166852 0.145841
2.116174

Total cost of Buying

3.702444

020942 0.886534 0.253078 2006e 7 2007e 8 2008e 9 0.226373 1.176094 0.Discount rate for Owning Risk free rate 6.0567 0.176094 0.354032 1.144068 2013e 14 7.503125 0.762076 6.429869 0.567526 1.085128 0.065038 0.013985 0.127476 0.503125 0.162 0.473931 0.451363 0.138281 2006e 7 5.0567 0.215345 0.00384 1.503125 0.721733 1.503125 0.728197 2014e 15 7.8700% Rd 8.183237 0.041046 0.0567 0.354088 1.113466 0.02741 0.198643 0.297423 0.274356 0.023959 0.503125 0.043432 .492882 debt equity D/V E/V WACC 2011e 2012e 12 13 6.0567 0.0567 0.097392 0.04969 0.162 0.503125 0.635113 0.0567 0.176094 0.169026 2010e 11 2011e 12 2012e 13 2013e 14 2014e 15 0.015999 0.497627 0.487692 1.05018 1.031359 2009e 10 0.32243 0.162 0.87% MRP 8% Beta 1.5 Re 18.645902 7667 14978 0.0567 0.522509 0.074408 0.421792 2010e 11 6.176094 0.056848 0.035877 0.661426 0.75% 1917 14978 0.23345 0.814607 0.111423 0.162 0.176094 0.176094 0.503125 0.162 0.162 0.162 0.503125 0.289608 2008e 2009e 9 10 5.176094 0.338574 0.176094 0.162 0.162 0.670323 7.0567 0.604869 0.0567 0.576066 0.352689 1.548634 0.018304 0.503125 0.176094 0.228198 2007e 8 5.

037963 0.771983 0.385815 9.0567 0.143825 2015e 16 2016e 17 0.162 0.205667 2.100635 2018e 2019e 19 20 9.735222 0.029004 0.000605 2017e 18 8.022159 .012224 0.666868 0.503125 0.810582 0.025352 0.10782 1.112889 2017e 18 2018e 19 2019e 20 0.162 0.155917 0.0567 0.162 0.513211 2.31595 0.855106 2.503125 0.007135 0.008163 0.905338 2016e 17 8.009339 0.176094 0.122381 0.162 0.162 0.503125 0.503125 0.2015e 16 8.176094 0.13267 0.033183 0.010684 0.938871 2.700212 0.0567 0.503125 0.176094 0.0567 0.176094 0.176094 0.0567 0.

Current Multiple Ownership Adjusted Pre-tax Income Leasing 2.071 1.071 Lexington Interest 504 0 Lexington Depreciation 162 0 4.Lexington Debt 5.770 16.Lease Cost Adjusted Pre-tax Income Interest (w/o Lexington) 0 471 471 1.154 3.612 The EBITDA multiple doesn't take (excluding Lexington) difference in EBITDA Cost of Lexington .978 Equity Value New equity value of ownership .229 20.Depreciation 162 0 0 925 1.917 1.687 .895 depreciation (w/o Lexington) EBITDA Multiple Value of Operations + Excess Cash Total Enterprise Value 5 x gain in value of equity multiple can be seen as a proxy of 1.917 . compute the fair equity value o assume no transaction costs! equity value according to DCF Debt Value of operation EBITDA Implied multiple lease cost gain implied by new mu .145 0 750 20.770 16.103 14.Debt (w/o Lexington) 1. valuate the PV of FCF of buying 2.612 2.750 0 13.Interest 504 . find the new multiple 3.946 1.

387 . find the new multiple 3. compute the fair equity value of ownership in substracting debt assume no transaction costs! equity value according to DCF Value of operation Implied multiple 22.154 6.47065 5.75 28 4.089 19.8 lease cost gain implied by new multiple New equity value of ownership 6284.The EBITDA multiple doesn't take the risk involved in the project and doesn't reflect correctly the future CF difference in EBITDA 925 gain in value of equity lease cost 4625 lease cost gain * multiple multiple can be seen as a proxy of free cash flow valuation. valuate the PV of FCF of buying Lexington 2. 1. this has a large impact on the multiple valuation.

162 0.9 4.740474 0.503125 0.272119 1.426372 2.904251 1.634625 3.601016 PV FCF 1999 0 22.FCF 2.132206 1.514738 0.265338 2.076912 1.075349 1.162 .849613 4.200456 1.162 0.162 0.327031 0.362506 2.503125 0.102669 2.327031 0.503125 0.162 EBT tax net income 3.229419 2.162 0.327031 0.138008 2.162 FCF disc.991279 3.29975 0.162 0.502248 2.648977 interest after tax depreciation 0.429875 3.327031 0.year revenue mortgage cost depreciation 2001e 2002e 2 3 3.162 2004e 5 4.746025 1.162 0.095 4.503125 0.71845 2.47065 2000e 1 2003e 4 4.327031 0.5917 2.851538 2.234875 3.503125 0.347364 1.

162 0.487692 0.696917 3.185948 1.803043 2.503125 0.468113 1.80205 3.338715 6.734914 .162 2006e 7 5.005198 6.00384 0.21855 2.347789 0.609196 4.352689 0.162 0.990647 2.162 4.346297 1.670323 7.162 2008e 2009e 9 10 5.836821 0.327031 0.226373 0.05018 0.312373 4.354032 0.038441 0.162 2013e 14 7.162 0.596437 1.327031 0.687898 1.801223 0.327031 0.453842 3.503125 0.162 2011e 2012e 12 13 6.162 0.162 0.688907 1.952414 4.503125 0.503125 0.989317 4.977498 0.162 2007e 8 5.162 0.327031 0.503125 0.39241 4.500286 3.341117 2.234636 1.292074 3.101819 2.2005e 6 4.096951 5.903379 4.762076 6.120165 4.327031 0.503125 0.884769 1.509331 1.87354 0.134668 3.327031 0.964811 3.162 0.687564 6.822567 5.132277 1.162 0.327031 0.503125 0.162 2010e 11 6.561248 4.783933 1.327031 0.327031 0.503125 0.162 0.313018 3.503125 0.162 0.6237 3.162 3.385055 5.

327031 0.618356 0.586795 4.837752 5.15748 6.162 0.866966 6.162 5.327031 0.162 2017e 18 8.74683 2.503125 0.327031 0.462519 0.477333 0.075827 5.326783 5.567226 0.377935 5.101256 5.590287 5.503125 0.327031 0.503125 0.162 0.162 2019e 20 9.437894 .327031 0.668449 5.052242 3.056608 7.855106 0.513211 0.72069 9.327031 0.162 0.674112 0.973487 0.442695 7.503125 0.895811 3.503125 0.938871 0.520336 0.2014e 2015e 15 16 7.162 2016e 17 8.503125 0.216493 4.162 7.10782 0.848086 8.162 0.162 0.721733 8.385815 0.189981 2.273746 8.162 2018e 19 9.162 0.604943 2.469813 2.

477273 Total lease payment in 2000 0.925 Lease payment that TSI has to pay to new holding 0.162 EBITDA 3. holding company is created to buy lexington real estate and then lease it back to TSI 2.4477 Interest (w/o Lexington) 0.614973 6.723 Current Multiple Leasing Adjusted Pre-tax Income 2. HDC is sold to TSI 4.5 8.Depreciation 0.162 .47727273 Lexington Depreciation 0.525 Adjusted Pre-tax Income 1.1450 0.47727273 .1.525 0. HDC leases lexington for 20y HDC takes on debt + add some equity in the new holding to buy lexington price of the lexington real estate in 1999 interest mortgage rate mortgage contract time (years) maximum amount TSI is willing to pay for lease annualy annual morgage payment by HDC 6.629 Multiple Value of Operations + Excess Cash 18.447727 implied new debt Value of Lexington in 2000 (after 1year depreciation) Hence.50% 20 0.612 (excluding Lexington) Cost of Lexington .Interest 0.338 0. equity to be added to the project 5.0270 . Holding borrows money from bank to buyback lexington lease payment = 110% of annual loan (loan includes principal + interest) 3.471 depreciation (w/o Lexington) 1.0710 Lexington Interest 0.Lease Cost 0.

Total Enterprise Value 18.917 .1720 .Debt (w/o Lexington) 1.2550 .Lexington Debt Equity Value 16.

5525 110% if the lease payment is 110% 100% then what is the annual mortgage payment with value of 100%? 5 x (excess cash used to buy new equity in holding) 2003e 4 4.5525 total 11.010441 0.095 4.5525 2004e 5 4.514738 1.5525 0.925 0.9 4.6025 2001e 2002e 2 3 3.962325 1.060963 0.5% year 1999 0 2000e 1 revenue lease payement mortgage 0.29975 0.114011 0.740474 1.5525 0.5525 .

value exceed ownership and original leasing agreement of HDC .

487692 1.226373 1.352689 1.670323 7.492882 0.05018 1.354032 1.5525 2007e 8 5.762076 6.2005e 6 4.5525 2010e 11 6.5525 0.228198 0.00384 1.421792 0.5525 0.977498 1.5525 2006e 7 5.567526 1.728197 0.645902 0.169712 0.5525 2008e 2009e 9 10 5.5525 .354088 1.5525 2011e 2012e 12 13 6.289608 0.5525 2013e 14 7.

.

814607 1.385815 9.855106 2.5525 .513211 2.10782 1.721733 8.5525 0.31595 0.5525 2017e 18 8.5525 2016e 17 8.905338 0.100635 0.2014e 2015e 15 16 7.5525 2018e 2019e 19 20 9.938871 2.5525 0.000605 0.205667 2.

87% MRP 8% Beta 1 Re 14.162 0.327031 0.29975 0.026619 +depreciation +interest after taxes 0.933135 2.117 0.553854 1.80754 6.327031 FCF disc.163048 2.30754 .8700% Rd 8.51565 2.128993 0.135442 0.414211 2004e 5 4.327031 0.694637 1.162 0.307025 2.503125 0.75 Discount rate for Leasing Risk free rate 6.503125 0.505633 2.848259 1.162 3.503125 0.327031 0.162 3.424829 purchase price 21.767692 2.556538 2005e 6 4.12285 0.149325 0.327031 0.117875 2.71417 2.maintenance cost revenue growth tax rate Mortgage rate Mortgage for purchase 3% 5% 35% 8.705981 revenue maintenance cost Mortgage cost depreciation EBT Net Income 3.FCF 2.162 0.149566 2002e 3 4.327031 0.162 3.162 0.503125 0.198865 2.503125 0.142214 0.015904 1.9 0.162 0.162 3.278661 2003e 4 4.162 3.095 0.195013 2.162 0.638598 2.503125 0.75% 5.045569 3.514738 0.75% debt equity D/V E/V WACC NPV year 1999 0 2000e 1 2001e 2 4.740474 0.162 4.5 NPV 15.977498 0.903242 3.

162 0.404457 2.20355 3.20011 0.503125 0.75% 1917 14978 0.156791 0.327031 3.503125 0.113466 0.670323 0.128599 3.162 6.862897 2007e 8 5.231652 0.351928 3.503125 0.713125 0.51669 3.503125 0.198176 1.327031 0.327031 0.472621 4.925253 1.98359 7667 14978 0.382307 2010e 11 6.162 0.162 0.Discount rate for Owning Risk free rate 6.162 5.226373 0.657936 3.327031 0.162 0.327031 0.503125 0.162 0.327031 0.262339 4.162 4.162 0.354032 0.824956 4.164631 0.924228 0.661426 0.098816 1.436222 0.190581 0.721733 0.8700% Rd 8.162 5.007731 0.204386 2014e 15 7.773308 2012e 13 7.327031 0.5 Re 18.220621 0.06207 4.138281 2006e 7 5.200658 2009e 10 6.924089 3.162 6.87% MRP 8% Beta 1.693417 4.162 4.496983 3.654114 .573039 debt equity D/V E/V WACC 2011e 12 6.144068 2013e 14 7.847672 0.162 0.352689 0.00384 0.162 6.777482 0.689689 3.487692 0.871339 4.327031 0.338574 0.027658 2008e 9 5.181505 0.805089 3.210115 0.503125 0.327031 0.05018 0.162 0.503125 0.886534 0.162 5.468286 4.503125 0.762076 0.172862 0.306571 1.503125 0.162 4.162 0.

974456 6.424279 5.327031 5.270344 0.162 0.327031 0.255396 0.439116 5.162 8.162 8.503125 0.162 7.513211 0.385815 0.203627 2018e 19 9.19946 4.679649 2016e 17 8.162 0.485425 2019e 20 9.162 0.504877 0.327031 0.327031 0.268166 0.162 7.2015e 16 8.327031 0.243235 0.692658 5.503125 0.281574 0.162 8.463145 0.938871 0.00558 5.935248 2017e 18 8.855106 0.16868 5.162 0.894328 5.424872 .59269 4.600003 0.503125 0.162 0.503125 0.550382 0.503125 0.10782 0.295653 0.781313 0.