Company: ATLN
Filing Date: 2025-01-23
Form Type: S-4/A
Source: 0001213900-25-006032
Chunk: 488

Company: ATLANTIC INTERNATIONAL CORP.
Filing Date: 2025-01-23
Form: S-4/A
Chunk 488
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 Rate The discount rate represents the risk an investor is willing to accept for the potential reward an investment in the subject company will return. Different rates apply to different types of investors. For example, since equity investments are riskier than debt investments, equity investors require a higher return to compensate them for that risk. Discount rates are based on factors that can be contrasted against investing in other vehicles of similar risk that are available as of the valuation date. When discounting Free Cash Flows to the Firm, the appropriate discount rate is the Weighted Average Cost of Capital (WACC). The WACC captures the required return to each of the firm’s investor classes and is weighted by the proportion that each investor class contributes to the firm’s capital structure. Mathematically, the WACC is expressed as follows: WACC = W d *(r d *(1 -t )) + W e *(r e ), where: W dequals the value of debt in the firm’s capital structure. r dequals the required return for investors to hold the company’s debt. t is the marginal corporate tax rate. W eequals the value of common equity in the firm’s capital structure. r eequals the required return to equity investors. The Weights of Debt and Equity, W d and W e For cost of capital calculations, the weights of debt and equity should be market values and should represent the optimal capital structure for the Company. To determine the Company’s optimal weighting of debt and equity, we analyzed the capital structures of comparable publicly traded companies, which averaged 17.7 % debt and 82.3% equity. We used this weighting under the assumption that over time, the Company will adjust its capital structure to industry levels. The Cost of Debt The cost of debt, r d, reflects the risk debt investors bear by holding the Company’s debt. We considered the average interest rate on the Company’s outstanding debt owed to Jackson Investment Group and Headway. We estimate the cost of debt at 14%. The Marginal Tax Rate, t We assumed an effective tax rate of 26.73%, as noted above. The Cost of Equity, r e The cost of equity reflects the required return for investors to hold a company’s stock. In our analysis, we relied upon the widely -usedCapital Asset Pricing Model (CAPM) to estimate the Company’s cost of equity. The CAPM holds that the required return to equity holders can be expressed with the following equation: Cost of Equity = Risk-Free Rate + Beta*(Eq. Risk Premium) Risk