fm16 19 - In this example, NOPAT = ($500,000)(1-0.40) =...

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Mini Case: 16 - 19 Next, find the WACC. For example, the WACC for w d = 20% is: WACC = w d (1-T) r d + w e r s WACC = 0.2 (1 – 0.4) (8%) + 0.8 (12.9%) WACC = 11.28% Then repeat this for all capital structures under consideration. w d r d r s WACC 0% 0.0% 12.00% 12.00% 20% 8.0% 12.90% 11.28% 30% 8.5% 13.54% 11.01% 40% 10.0% 14.40% 11.04% 50% 12.0% 15.60% 11.40% h. (2) Now calculate the corporate value. Answer: For example the corporate value for w d = 20% is: V = FCF / (WACC-G) G=0, so investment in capital is zero; so FCF = NOPAT = EBIT (1-T).
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Unformatted text preview: In this example, NOPAT = ($500,000)(1-0.40) = $300,000. Using these values, V = $300,000 / 0.1128 = $2,659,574. Repeating this for all capital structures gives the following table: w d WACC Corp. Value 0% 12.00% $2,500,000 20% 11.28% $2,659,574 30% 11.01% $2,724,796 40% 11.04% $2,717,391 50% 11.40% $2,631,579 As this shows, value is maximized at a capital structure with 30% debt....
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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