controlvalue - Inputs Currentriskfreerate= 4.50%...

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Inputs Current riskfree rate = 4.50% Risk Premium = 4.00% I will assume that there are zero excess returns beyond your high growth phase. Status Quo Optimal Beta 0.90 1.06 Pre-tax cost of debt 6.00% 7.00% Hints on control value Tax rate 40.00% 40.00% 1. Check on capital structure to see if a different mix can lower cost of capital (Use capital structure spreadsheet which is available online) Debt to Capital Ratio 10.00% 30.00% 2. Check on current pre-tax operating margin and check against industry averages; May provide clues for potential cost cutting 3. Check after-tax return on capital. If it is below cost of capital, set at least to cost of capital. If it is above the cost of capital, check against industry averages and historical trend line. Revenues $1,000.00 $1,000.00 4. If return on capital is high, check reinvestment rate. If it is very low, check to see if there is potential for increase.
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This note was uploaded on 01/29/2012 for the course FIN 6000 taught by Professor Banko during the Fall '11 term at University of Florida.

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