Mr JGU was now contemplating starting a new business. He needed to raise money for the new business. While he liked the steady dividends from JGBS, he was open to selling 40% of JGBS equity to a partner. He called in BBA Consultants for advise. The Consultant noted that Mr JGU’s opportunity cost was steady at 15% so only one of the various approaches to valuing a levered company seemed appropriate. He used that approach.
a. Name the approach selected by the consultant.
b. What would be the value of equity in JGBS now?
d. How much could he raise for his new venture if he sold a 40% stake in JGBS? What would be the value of his remaining stake in JGBS?
