Atrion Corporation.2018 (NASDAQ: ATRI)

View this company as if you are evaluating it as an acquisition of 100% of the common stock outstanding, not as the price of one share of stock

Select a discount rate using WACC. Weights and costs of elements of the capital structure.

• Interest bearing debt classified as a current liability. Unless circumstances would indicate otherwise, use book value and stated interest rate less tax effect. Rate (1-T).
• Long-term debt. Create a synthetic market yield-to-maturity by calculating and interest coverage ratio (EBIT/Interest expense) and referring to the Damodaran Ratings, Interest Coverage Ratio and Default Spreads table to obtain a default spread to add to the comparable Treasury Rate. Give effect to taxes. Rate (1-T). Use the synthetic market yield-to-maturity to determine market value for market structure weights.
• Preferred stock.

• If publically traded, use market value and determine cost using D/Po.
• If not publically traded, and not significant to capital structure, use book value and dividend rate. If significant, then attempt to create a synthetic market value and cost by comparing to similar issues that trade more frequently.

• Common stock. Use current market capitalization as an estimate. Determine cost using the Capital Asset Pricing Model (CAPM) [R(F) + b(MRP)]. Use the current 10 Year Treasury rate for R(F), obtain MRP from the Damodaran web site, create a synthetic b by (1) selecting betas of comparable industry peers, deleverage those betas using the formula (see formula posted on elearning), average the deleveraged betas, re leverage the average beta based on the Companys debt/equity ratio and marginal tax rate. Remember we are assuming the Company is private.

Compute WACC [(wt of debt x cost) + (wt of preferred x cost) + (wt of common x cost)]