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Calculate the WACC and the firm value based on the WACC method. It will be necessary to calculate the firm value (and hence the debt
- Calculate the WACC and the firm value based on the WACC method. It will be necessary to calculate the firm value (and hence the debt ratio) and the WACC for each year.
- Calculate the firm value based on the APV method, assuming ITS has the same risk as the debt.
- Calculate the CCF and the firm value based on the CCF method.
All three amounts should be identical.
Valuation Methods -Equivalence of WACC, APV, CCF Assumptions (in USD, at the end of each period) YearoYearlYear2 Year3Year4Years Risk Free Rate (Rf) Market Risk Premium (MRP) Tax Rate (tx) Asset Beta (or unlevered equity beta) Debt Beta EBIT Depreciation 3.0% 6.0% 40%) 1.3 0.35 45% 6.0% 35%| 1.3 0.3 5.0% 6.0% 30%| 1.3 0.25 5.5% 6.0% 25%| 6.0% 6.0% 25% 1.3 0.2 1.3 100,000 $104,000 $108,000 $109,000 $112,000 55,000! S57,200! S59,400| S59,950| S61,600 $65,000$67,600 $70,200 $70,850 $72,800 $10,000$10,400 $10,800 $10,900 $11,200 $0 12 3 Increase in NWC $150,000 $125,000 $80,000 $50,000$25,000 Free Cash Flow (FCF) 17 16 100,000104,000 108,000 109,000112,000 -40,000 55,00057,200 59,40059,95061,600 -65,00067,60070,20070,85072,800 Taxes on EBIT 36,400 32,40027,250 28,000 19 + Depreciation CAPEX Increase in NWC 2FCF 40,00046,80054,000 59,950 61,600 Valuation Methods -Equivalence of WACC, APV, CCF Assumptions (in USD, at the end of each period) YearoYearlYear2 Year3Year4Years Risk Free Rate (Rf) Market Risk Premium (MRP) Tax Rate (tx) Asset Beta (or unlevered equity beta) Debt Beta EBIT Depreciation 3.0% 6.0% 40%) 1.3 0.35 45% 6.0% 35%| 1.3 0.3 5.0% 6.0% 30%| 1.3 0.25 5.5% 6.0% 25%| 6.0% 6.0% 25% 1.3 0.2 1.3 100,000 $104,000 $108,000 $109,000 $112,000 55,000! S57,200! S59,400| S59,950| S61,600 $65,000$67,600 $70,200 $70,850 $72,800 $10,000$10,400 $10,800 $10,900 $11,200 $0 12 3 Increase in NWC $150,000 $125,000 $80,000 $50,000$25,000 Free Cash Flow (FCF) 17 16 100,000104,000 108,000 109,000112,000 -40,000 55,00057,200 59,40059,95061,600 -65,00067,60070,20070,85072,800 Taxes on EBIT 36,400 32,40027,250 28,000 19 + Depreciation CAPEX Increase in NWC 2FCF 40,00046,80054,000 59,950 61,600Step by Step Solution
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The New Market Wizards Conversations With Americas Top Traders
Authors: Jack D. Schwager
1st Edition
0887306675, 978-0887306679
