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Ch10 - CHAPTER 10 Corporate Value and Value-Based...

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CHAPTER 10 Corporate Value and Value-Based Management
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E. E. (1) (2) Sources of corporate value : Sources of corporate value : Value of Operation +Value of Non-operating Assets $ 420 + $ 100 = $ 520 Value of Equity Value of Equity =Total Corporate Value - Value of Debt - Value of Preferred St. = $520 - $200 - $ 50 = $ 270 1 $21 $420 ( ) 0.05 op FCF V WACC g = = = -
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E. E. (Continued) (Continued) Market Value Added (MVA) : Market Value Added (MVA) : =Total Value of the firm - Book Value of Debt - Book value of preferred stock – Book value of equity = $520 - $200 - $50 - $210 = $ 60 $0,0 $100,0 $200,0 $300,0 $400,0 $500,0 $600,0 Market Value Sources Market Value Claims Book Value Claims MVA Book Value Equity Market Value Equity Pref. Stock Debt Non Op. Assets Vop
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F. F. (1)The horizon value is the value of all the free cash flows in year 4 and beyond, discounted back to the beginning of year 4. The formula is: Hv year 4 = [FCF year 4 * (1+g)] / [ WACC - g] PV of Horizon Value @ WACC : $ 398.19 PV of free cash flows @ WACC : $18.75 So, the PV of operations is $ 416.94 (2) Value of equity = Value of operations - Debt $ 376.94 = 416.94 - 40 Price per share = 376.94/10 = $37.69
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H. & I. H. & I. H: H: MVA is determined by 4 drivers : sales growth, operating
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