Title: THE PRACTICAL APPLICATION OF DISCOUNTED CASH-FLOW BASED VALUATION METHODS Publication: Studia Universitatis Babes Bolyai – Oeconomica‚ LII‚ 2/2007 Author Name: Takács‚ András; Language: English Subject: Economy Issue: 2/2007 Page Range: 13-28 Summary: Valuation methods based on Discounted Cash-Flow (DCF) play a major role in the field of company valuation. The current literature contains a reasonably deep and detailed theoretical basis for DCFbased valuation‚ although‚ when starting to
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a project ceteris paribus‚ so changes in capital structure explain disproportional changes. In an attempt to maximize firm value‚ the mix of equity and debt changes depending on the project as shown in the following table. Table 1 - Summary WACC Table Company Unit Industry Beta Equity Beta Hurdle Rate Marriott Corp 0.5720 1.43 40% 19.57% 60% 10.25% 11.27% Lodging Business 0.4212 1.62 26% 20.99% 74% 10.25% 9.70% Restaurant 0.9396 1.62 58% 20.99% 42% 10.25% 14.58% Contract Services
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Case 2: Analysis of Alternatives Student Educational Loan Fund‚ Inc. Institution: University Gadjah Mada Program: Master of Management Course: Risk Management Tutor: Mrs. Erni Ekawati‚ PhD. Title: Case 2: Analysis of Options Subtitle: Student Educational Loan Fund‚ Inc. Date: November 17‚ 2008 Place: Yogyakarta Authors: Martin Koopman Doddy Handaryadi Anindito Prabowo Gumirlang Wicaksono Introduction This report describes the situation which
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Grade Details 1. Question: The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to _________. Your Answer: maximize its expected total corporate income maximize its expected EPS minimize the chances of losses maximize the stock price per share over the long run‚ which is the stock’s intrinsic value CORRECT maximize the stock price on a specific
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Joanna began her calculation of Nike’s WACC by finding the necessary weights of debt and equity to be used. To begin‚ Joanna found Nike’s debt by combining the book values of current long-term debt‚ notes payable‚ and long-term debt‚ which were all found on Nike’s balance sheet. The values were $5.4 million‚ $855.3 million‚ and $435.9 million respectively. This calculation gave Nike a total debt of $1‚296.9 million. To find Nike’s equity‚ Joanna used the book value of total shareholders’ equity
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|Case 9 | |Performance Boating Products‚ Inc. | Performance Boating Products‚ Inc I. Situation Analysis • Performance Boating Products‚ Inc (PBP) manufactures attachments for boat hulls and motors that aid watercraft in reducing drag and maintaining ‘plane’. • PBP attachments can be integrated as part of new
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FINS3625 APPLIED CORPORATE FINANCE Case Study Written Report Week 8 Valuation: Laura Martin Name Student Number % Contributio n 20 20 20 20 20 Signature Karen Chan Yifeng Chen (Nino) Tony Richardson Weitao Wu (Tony) Wendy (Wenyu) Yan z3242429 z3283995 z3253113 z3284666 z3241580 1 Multiples versus DCF analysis Multiples analysis is simple to understand and apply. The inputs for the multiple are publicly available‚ though are vulnerable to accounting manipulation. Also
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Original value of the firm: V= D + S = 0 + ($15)(200‚000) = $3‚000‚000 Original cost of capital: WACC = wd(1-T)rd + wsrs = 0 + (1.0)(10%) = 10% With financial leverage (wd = 30%): WACC = wd(1-T)rd + wsrs = (0.3)(7%)(1-0.40) + (0.70)(11%) = 8.96% Since the growth is zero‚ the value of the company is: V= FCF/WACC = [EBIT)(1-T)]/WACC = [($500‚000)(1-0.4)]/(0.0896) = $3‚348‚214 Therefore‚ increasing the financial leverage by adding $900‚000
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2) How does Debt add value at CPK? (values in thousands) - Do Nothing: ROE‚ WACC ROE: NI/BVofE (20299/225888)= 8.99% ROE: NI/MVofE (20299/643773)= 3.15% WACC: 9.52% COE: .85(10.3-5.1)+5.1=9.52% - Add $45‚177‚600 in Debt (20% Debt/Total Book Capital): New ROE‚ Present Value of Tax Shields‚ # shares outstanding after repurchase‚ Expected Post-Issuance Stock Price‚ BetaLev‚ REquity‚ and new WACC. (Note: Use Rf of 10 yr. UST Note‚ and an expected Rm=10.3%. Also‚ assume
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Advantages (government websites) 2 - Cost of Equity‚ Appropriate Discount Rate (WACC) Cost of equity 1. Formula Risk Free Rate + (Market Premium x Overall Company Beta) 2. Each part a. Risk free rate (10-year T-bill) i. bond rating chosen * interest rate * b. Market premium c. Beta i. Appropriate Discount Rate (WACC) 1. Formula Weight of Debt x After-Tax Cost of Debt) + (Debt to Equity x Cost of Equity) 2. WACC (important – why is it important for the company‚ Tesca‚ to know this?) 3. Each
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