Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The following excel fields has been completed by me.. Please do the ones in BOLD and complete my excel... thank you CHATGLOBAL TELECOM's has perpetual

The following excel fields has been completed by me.. Please do the ones in BOLD and complete my excel... thank you

image text in transcribed CHATGLOBAL TELECOM's has perpetual earnings before interest and taxes of $450, the corporate tax rate is 40%. CHATGLOBAL uses a debt-to-equity ratio of 0.75. The debt is priced to yield the risk-free rate of interest. CHATGLOBAL's depreciation expenses are not tax deductible and just offset capital expenditures in each year, and changes in working capital are zero. CHATGLOBAL has a 100% payout policy. The risk-free interest rate is 8% and the \"market premium\" (market rate less the risk-free rate) is 8.5%. We don't know CHATGLOBAL's asset beta, but we believe Comp Co.'s assets have the same risk as CHATGLOBAL. We know the following about Comp Co.: it debt value is $13,945, its market value of equity value is $7,000, its tax rate is 36%, its debt beta is 0.3725, and its equity beta is 1.80. (Note: The expected return on any asset i can be measured using the CAPM, Ri RF [RM RF ] , where RM - RF is the \"market premium\".) Complete the following table entries: Then determine CHATGLOBAL value using NPV, APV, FTE, and 's CCF methods using valuation framework. In using APV, determine what CHATGLOBAL value would be if CHATGLOBAL financed only with equity. 's That is, estimate the value of NPVF. 0 annual cash flows Valuation problem End of year 2 1 3 4 450.0000 y cash flow annual debt schedule nning debt 450.0000 450.0000 450.0000 67.7864 382.2136 152.8854 229.3282 0.0000 0.0000 0.0000 229.3282 EBIT interest EBT Taxes NI Dep CAPEX nge in WC l cash flow 67.7864 382.2136 152.8854 229.3282 0.0000 0.0000 0.0000 229.3282 67.7864 382.2136 152.8854 229.3282 0.0000 0.0000 0.0000 229.3282 67.7864 382.2136 152.8854 229.3282 0.0000 0.0000 0.0000 229.3282 229.3282 229.3282 229.3282 229.3282 847.3299 847.3299 847.3299 847.3299 847.3299 Debt terminal value estimates 1975.1280 Firm Value 847.3299 Debt 1127.7981 Equity annual discounting 0.4286 ebt/capital 0.5714 ity/capital 1.0000 Asset beta 0.1650 uity WACC 847.3299 847.3299 847.3299 1975.1280 847.3299 1127.7981 1975.1280 847.3299 1127.7981 1975.1280 847.3299 1127.7981 0.4286 0.5714 0.4286 0.5714 0.4286 0.5714 1.0000 1.0000 1.0000 0.1650 0.1650 0.1650 Debt beta Equity beta t of equity 0.0000 1.4499 0.2032 0.0000 1.4499 0.2032 0.0000 1.4499 0.2032 0.0000 1.4499 0.2032 ost of debt of capital 0.0800 0.1367 0.0800 0.1367 0.0800 0.1367 0.0800 0.1367 270.0000 270.0000 270.0000 270.0000 EBIT (1-T) NPV bS = the comparable's levered equity beta bB = the comparable's debt beta Tc = the comparable firm's corporate tax rate B = the market value of the comparable's debt S = the market value of the comparable's equity 1.8 0.3725 0.36 $13,945 $7,000 Next shows the implied debt to equity ratios B/S = the debt -to-equity ratio 1.9921 B/(B+S) = debt-to-valu ratio 0.6658 S/(B+S) = equity to value ratio 0.3342 The unlevered asset beta is bo = the unlevered asset beta bB = the debt beta Tc = the corporate tax rate 0.99998 0.0000 0.40 B = the market value of the debt S = the market value of the equity Rf = the risk free rate 0.0800 RM = the return on the market portfolio 0.1650 Next shows the debt to equity ratios B/S = the debt -to-equity ratio 0.7500 B/(B+S) = debt-to-valu ratio 0.4286 S/(B+S) = equity to value ratio 0.5714 Levered Equity beta 1.449971 0.999980 III. DCF Methods Present value Terminal value and interim vale Terminal value, TV, & interim cash flows Terminal value and interim cash flows Example III.1, Project V-Plus annual cash flows, Project V-Plus annual debt schedule, Project V-Plus annual discounting, Project V-Plus terminal value estimates, Project VPlus A. NPV NPV/WACC Example NPV Rule Pros and cons of NPV B. The internal rate of return, irr irr Rule Graphically Graphically, many projects Cons of irr C. APV: Adjusted Present Value Finding NPV(S ) O proof APV=NPV APV Example APV Example Finding NPVF We look at the debt tax shield case APV Example APV Example APV Example Pros and cons of of APV D. FTE: Flow-to-Equity FTE Example FTE Example Proof FTE yields same as NPV Pros and cons of of FTE E. CCF Method CCF CCF Example CCF Example CCF Example Does CCF=NPV? Pros and cons of CCF

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

MATLAB An Introduction With Applications

Authors: Amos Gilat

6th Edition

111938513X, 978-1119385134

More Books

Students also viewed these Finance questions