Lecture_18_ - 2-1Lecture 18Chapter 17: McKENZIE...

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Unformatted text preview: 2-1Lecture 18Chapter 17: McKENZIE CORPORATIONS CAPITAL BUDGETINGChapter 18:Valuation and Capital Budgeting for the Levered Firm2-2DataValue of the companyVwithout project= .30(30,000,000) + .5(35,000,000) +.2(51,000,000) = 36,700,000Vwith project= 45,700,000ProbabilityWithout expansionWith expansionRecession0.30 $ 30,000,000 $ 33,000,000 Normal0.50 $ 35,000,000 $ 46,000,000 Expansion0.20 $ 51,000,000 $ 64,000,000 Face value of debt$ 34,000,000 Cost of expansion $ 8,400,000 2-3NPVThe expected NPV of the project is:9,000,000 8,400,000 = $600,0002-4Debt ValueDwithout project= 0.30 (30,00,000) +.5(34,000,000) + .2(34,000,000) = 32,800,000Dwith project= 33,700,000Bondholder gain = 900,000ProbabilityDebt w/o ExpansionWith expansionRecession0.30 $ 30,000,000 $ 33,000,000 Normal0.50 $ 34,000,000 $ 34,000,000 Expansion0.20 $ 34,000,000 $ 34,000,000 Face value of debt$ 34,000,000 Cost of expansion $ 8,400,000 2-5Equity ValueEwithout project= .3(0) + .5(1,000,000) +.2(17,000,000) = 3,900,000Ewith project= .3(0) + .5(12,000,000) +.2(30,000,000) = = ....
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Lecture_18_ - 2-1Lecture 18Chapter 17: McKENZIE...

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