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    Fcffvsfcfe

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    1) The document provides inputs to value a firm using a discounted cash flow model, including earnings, growth rates, tax rates, debt levels, and costs of equity and debt. 2) Based on the inputs, the firm's value is estimated to be $617,000 with equity valued at $494,000 and debt valued at $123,000. 3) The calculations also estimate the firm's value using a weighted average cost of capital approach, again valuing equity at $494,000.

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    Fcffvsfcfe

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    91 views2 pages
    1) The document provides inputs to value a firm using a discounted cash flow model, including earnings, growth rates, tax rates, debt levels, and costs of equity and debt. 2) Based on the inputs, the firm's value is estimated to be $617,000 with equity valued at $494,000 and debt valued at $123,000. 3) The calculations also estimate the firm's value using a weighted average cost of capital approach, again valuing equity at $494,000.

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    fcffvsfcfe.xls

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    1) The document provides inputs to value a firm using a discounted cash flow model, including earnings, growth rates, tax rates, debt levels, and costs of equity and debt. 2) Based on the inputs, the firm's value is estimated to be $617,000 with equity valued at $494,000 and debt valued at $123,000. 3) The calculations also estimate the firm's value using a weighted average cost of capital approach, again valuing equity at $494,000.

    Copyright:

    © All Rights Reserved
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
    91 views2 pages

    Fcffvsfcfe

    Uploaded by

    Pro Resources
    1) The document provides inputs to value a firm using a discounted cash flow model, including earnings, growth rates, tax rates, debt levels, and costs of equity and debt. 2) Based on the inputs, the firm's value is estimated to be $617,000 with equity valued at $494,000 and debt valued at $123,000. 3) The calculations also estimate the firm's value using a weighted average cost of capital approach, again valuing equity at $494,000.

    Copyright:

    © All Rights Reserved
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
    of 2

    Inputs

    Earnings before interest and taxes = 100


    Expected growth for next 5 years = 10%
    Expected growth after year 5 = 5%
    Tax rate = 40%
    Debt ratio for the firm = 20%
    Cost of equity = 12%
    Pre-tax cost of debt = 7%
    Return on capital in high growth= 12%
    Return on capital in stable growth = 10%
    0 1 2 3 4 5
    Expected Growth rate 10% 10% 10% 10% 10%
    Reinvestment rate 83.33% 83.33% 83.33% 83.33% 83.33%
    EBIT $ 100.00 $ 110.00 $ 121.00 $ 133.10 $ 146.41 $ 161.05
    Taxes $ 44.00 $ 48.40 $ 53.24 $ 58.56 $ 64.42
    EBIT(1-t) $ 66.00 $ 72.60 $ 79.86 $ 87.85 $ 96.63
    - Reinvestment $ 55.00 $ 60.50 $ 66.55 $ 73.21 $ 80.53
    FCFF $ 11.00 $ 12.10 $ 13.31 $ 14.64 $ 16.11
    Terminal Value $ 932.56
    Present Value $ 9.96 $ 9.92 $ 9.88 $ 9.84 $ 577.40
    Value of Firm = $ 617.01 $ 670.42 728.314002 791.039984 858.983558 $ 932.56
    Value of Equity = $ 493.61 ! Equity as % of value
    Value of Debt = $ 123.40 ! Debt as % of value

    EBIT $ 100.00 $ 110.00 $ 121.00 $ 133.10 $ 146.41 $ 161.05


    Interest Exp $ 8.64 $ 9.39 $ 10.20 $ 11.07 $ 12.03
    EBT $ 101.36 $ 111.61 $ 122.90 $ 135.34 $ 149.03
    Taxes $ 40.54 $ 44.65 $ 49.16 $ 54.13 $ 59.61
    Net Income $ 60.82 $ 66.97 $ 73.74 $ 81.20 $ 89.42
    - Reinvestment $ 55.00 $ 60.50 $ 66.55 $ 73.21 $ 80.53
    + New Debt Issued $ 10.68 $ 11.58 $ 12.55 $ 13.59 $ 14.71
    FCFE $ 16.50 $ 18.05 $ 19.74 $ 21.58 $ 23.60
    Terminal Value of Equity $ 746.05
    Present Value $ 14.73 $ 14.39 $ 14.05 $ 13.72 $ 436.72
    Value of Equity = $ 493.61

    Capital Structure
    Debt at end of year $ 123.40 $ 134.08 $ 145.66 $ 158.21 $ 171.80 $ 186.51

    Cost of Equity 12.00% 12% 12.00% 12.00% 12.00%


    Pre-tax Cost of Debt 7.00% 7% 7.00% 7.00% 7.00%
    After-tax Cost of Debt 4.20% 4% 4.20% 4.20% 4.20%
    Cost of Capital 10.44% 10.44% 10.44% 10.44% 10.44%
    Terminal Year
    5%
    50.0%
    $ 169.10
    $ 67.64
    $ 101.46
    $ 50.73
    $ 50.73

    ! This is the present value of the cash flows to the firm


    starting in each year; year 2, year 3

    $ 169.10
    $ 13.06
    $ 156.05
    $ 62.42
    $ 93.63
    $ 50.73
    $ 9.33 ! This is the new debt issued each year
    $ 52.22

    $ 195.84 ! This is 30% of each year's firm value

    12.00%
    7.00%
    4.20%
    10.44% ! Computed using a 70% Equity; 30% Debt
    ratio.

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