firm valuation In-Class Exercise only

firm valuation In-Class Exercise only - In-Class Exercise...

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Unformatted text preview: In-Class Exercise •Value Laughers (FCFE and FCFF approach):–The firm’s beta is 1.2–The MRP is 8.6%and the T-bill rate is 3%–Laughers debt trades at 110% of parvalue–The debt is composed of bonds with 10 years to maturity and a 9% coupon rate–The firm has 4455 sharesof stock outstanding–The firm’s stock is trading at $5per shareIncome Statement: 20x2Net sales$9,610•Less: Cost of goods sold6,310•Less: operating expense900•Less: Depreciation470 •Earnings before interest and taxes 1,930•Less: Interest paid630•Taxable Income$1,300Comparative Balance Sheet 20x120x220x120x2•Cash $310 $405 A/P$ 2,720 $ 2,570•A/ rec.2,640 3,055N/P100•Inv3,2753,850T. CL $ 2,820$ 2,570•T. CA $ 6,225$7,310LTD7,875 8,100•FAssets 10,96010,670CS 5,000 5,250RE 1,4902060•T. assets $17,185$17980Total $17,185$17980Step 1: calculate the cost of equity and debt •Equity–CAPM: E(r) = 3% + 1.2(8.6) = 13.32%•Debt–YTM:•FV = 100•Pmt = 9•N = 10•PV = -110 (110% of par)Step 2: Weights...
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firm valuation In-Class Exercise only - In-Class Exercise...

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