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Lecture 05

AAA

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26 views7 pages

Lecture 05

AAA

Uploaded by

Are Eba
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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COMPUTING THE COST OF DEBT FOR KRAFT

2005/12/31 2004/12/31
Cash and cash equivalents 316,000,000 282,000,000

Short-term borrowings 805,000,000 1,818,000,000


Current portion of long-term debt 1,268,000,000 750,000,000
Due to Altria Group, Inc. and affiliates 652,000,000 227,000,000 Loan Taken
Long-term debt 8,475,000,000 9,723,000,000

Interest and other debt expense, net 636,000,000 666,000,000

TOTAL DEBTS 11,200,000,000 12,518,000,000 Net cost of debts


NET DEBTS 10,884,000,000 12,236,000,000 Gross cost of debts
Net cost of debts 5.84% 5.44%
Gross cost of debts 5.68% 5.32%
Net debts= total debts-Cash and cash equivalents
CASH IS NOT DEBT
EXPENSE IS NOT DEBT

Net cost of debts interst Ex/Net DEBtS


Gross cost of debts interst Exp/Total debts
COMPUTING THE WACC FOR KRAFT
Shares outstanding 1,669,880,755
Share price, end 2005 27.75 46339190951.25 Equity
Equity value, E 46,339,190,951
Net debt, D 10,884,000,000

WACC based on Gordon per-share dividends and interest from financial statements
Cost of equity, rE 16.79%
Cost of debt, rD 5.50%
Tax rate, TC 29.37%
WACC

Total capital 57,223,190,951

WACC 14.33% WACC=


Total capital=Debt+Equity
(Debt/Total capital)*kd*(1-tax) +Equity /Total capital*ke
FINANCIAL MODELING
SETTING UP THE FINANCIAL STATEMENT MODEL
Sales growth 10%
Current assets/Sales 15%
Current liabilities/Sales 8%
Net fixed assets/Sales 77%
Costs of goods sold/Sales 50%
Depreciation rate 10% FV=PV(1+I)
Interest rate on debt 10.00%
Interest paid on cash and marketable securities 8.00%
Tax rate 40%
Dividend payout ratio 40%
Income statement
Year 0 1 2 3
Income statement
Sales 1,000 1,100 1,210 1,331
Costs of goods sold (500) 550 605 666
Interest payments on debt (32) (32) (32) (32)
Interest earned on cash and marketable securities 6
Depreciation (100)
Profit before tax 374
Taxes (150)
Profit after tax 225
Dividends (90)
Retained earnings 135

Balance sheet
Cash and marketable securities 80
Current assets 150 165 182 200
Fixed assets
At cost 1,070
Depreciation (300)
Net fixed assets 770 847 932 1,025
Total assets 1,000

Current liabilities 80 88 97 106


Debt 320
Stock 450
Accumulated retained earnings 150
Total liabilities and equity 1,000

Current Ratio
Acid Test Ratio
Gross Profit Margin
Net Profit Margin
ROE
ROA
ROCE
Total Debt to Equity
Total Debt to Total Assets
Self Financing Ratio
Cash Flow Ratio
Interest Cover Ratio
FV=PV(1+I)

4 5 6

1,464 1,611 1,772


732 805 886
(32) (32) (32)

220 242 266

1,127 1,240 1,364

117 129 142

Inventory 40% 66
Debtors 30% 50
Prepaid 30% 50

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