| Group Assignment 1 | UST Case Study | 2/19/2013 | | | | Question 1: In order to calculate the impact of the leverage recapitalization on UST’s value‚ we used the WACC and APV methods to calculate its value before and after the recapitalization. WACC Method Using the WACC method‚ we first derived UST’s return on assets (rA). Since we are given the firm’s market capitalization‚ debt and cash‚ we calculated the current Enterprive Value of UST. We were then able to derive
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1. What are the benefits of debt for UST? How do you calculate the value of these benefits? Use a corporate tax rate of 38% to value the tax shields. The benefits of debt to UST are to create an interest tax shield. The interest tax shield directly increases the cash flows paid to equity investors. The present value of that interest tax shield increases the market value of UST as a leveraged firm vs. an unleveraged one‚ if they choose to recapitalize. The value of these benefits is calculated
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of Contents) 1. 2. 3.LBO 4.TXU 5. LBO 6. (Overview of Leveraged Buyouts) (Mechanics of an LBO Analysis) (LBO Best Practices) (TXU Case Study) (LBO Modeling) (Homework Assignment) (Appendix) 1. Overview of Leveraged Buyouts (LBO) Overview of Leveraged Buyouts An LBO is the acquisition of a company or division of a company using debt for a majority of the purchase price and equity for the remainder. The buyer (the LBO Sponsor or Equity Sponsor) borrows the debt portion of the purchase
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EMBA 8500 #1 Book value of debt Book value of equity Market value of debt Market value of equity Pretax cost of debt After Tax cost of debt rd Market value weights of: Wd Debt We Equity bL Levered beta Rf Risk-free Rate Market Premium RM Ke Cost of equity WACC EBIT - Taxes (34%) EBIAT + Depreciation - Capital expense Change in Net Working Capital Free Cash Flow Value of Assets ( FCF/WACC) CASE # 31 0% Debt 100% Equity $ $ 20‚000 $ $ 20‚000 7.0% 4.62%
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American Lawyer 2d yr full time possible exam – 1-1.5 on last day ------------------------------------------------- Jan. 10‚ 2012 Why take this class? * Reason 1: Leveraged acquisitions (LAs) aren’t going away * Lots of decline in 2007‚ 08‚ 09 * 10‚ 11‚ 12 little better * M&A isn’t going anywhere * LA and PE isn’t going anywhere – may decrease‚ but doubtful * Over 1 tril. avail. * Big factor: big institutional investors (pension funds
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UST Company UST Company is a retail company located in Hong Kong. This case contains information about the company’s accounting records and activities for 2016. The owner of the company has asked you to use this information to generate the company’s 2016 financial statements according to the International Financial Reporting Standards (“IFRS”). Requirements: A. Create an accounting equation worksheet for UST Company. This worksheet should include all the accounts listed in the company’s chart of
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1. Assess the business and financial risks of UST Business risks are relatively low: Main risk is that UST has undiversified business‚ it basically relies on one product However its main product is noncyclical‚ it carries little systematic risk Imminent increase in excise tax on smokeless tobacco (however‚ tobacco demand is considerably inelastic) It is the (sub)industry leader (market share >85%)‚ industry is an oligopoly which implies high barriers for potential competitors to enter the market
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Deena Shalab@16457 Reem Hani Arab @16185 CASE 4 An Introduction to Debt Policy and Value 1 (Table format and content from case) 0% debt/100% equity 25%debt/75% equity 50%debt/50% equity BV of debt 0 $2‚500 $5‚000 BV of equity $10‚000 $7‚500 $5‚000 MV of debt 0 $2‚500 $5‚000 MV of equity $10‚000 $8‚350 $6‚700 Pretax cost of debt 0.07 0.07 0.07 After-tax cost of debt 0.0462 0.0462 0.0462 Market Weight of Debt 0 0.23 0.43 Market Weight of Equity 1.0 0.77 0.57 Un-levered Beta 0.8
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the 1920’s Conservative Policies After World War 1‚ America was in a state of recovery‚ both economically and politically. To try to “fix” the new obstacles in America’s way‚ President’s such as Wilson‚ Harding‚ and Hoover all put in new policies‚ but many backfired. As a result‚ citizens were confused and felt no hope for their nation and government. The drive for normalcy‚ social tensions‚ and occupational divide manipulated as well as created this huge increase in conservative policies in the 1920’s
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Question 1: Does Borrowing Create Value? If so‚ for whom? If not‚ then why do so many executives concern themselves with leverage? It depends; Borrowing creates value if the company borrows at the optimal amount of debt or less. If the company borrows more than the optimal amount of debt‚ then borrowing will destroy value. Borrowing will increase value of the firm through the tax shield that borrowing brings. Thus‚ the increase value of the firm will increase the value of equity and create
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