di-0451-e

00 94860 247860 156060 96757 2528 margin interest

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Unformatted text preview: book value) TOTAL LIABILITIES 1,500 500 2,000 1,500 530 2,030 1,500 865 2,365 1,500 930 2,430 1,530.00 948.60 2,478.60 1,560.60 967.57 2,528 Margin Interest payments PBT (profit before tax) Taxes 420 120 300 105 680 120 560 196 740 120 620 217 765.00 120.00 645.00 225.75 780 122 658 230.27 PAT (profit after tax = net income) 195 364 403 419.25 427.64 Income statement 6 - IESE Business School-University of Navarra Using the balance sheet and income statement forecasts in Table 1, we can readily obtain the cash flows given in Table 2. Obviously, the cash flows grow at a rate of 2% after year 4. Table 2 Cash Flow Forecasts for Toro Inc. 1 2 3 4 5 PAT (profit after tax) 195 364 403 419.25 427.64 + depreciation 200 250.00 270.00 275.40 280.91 + increase in debt - increase in working capital requirements - investment in fixed assets ECF 0 -30 -200 165.00 0.00 -85 -500.00 29.00 0.00 -35 -300.00 338.00 30.00 -11 -313.00 400.65 30.60 -11.22 -319.26 408.66 FCF 243.00 107.00 416.00 448.65 457.62 CFd 120.00 120.00 120.00 90.00 91.80 CCF 285.00 149.00 458.00 490.65 500.46 The unlevered beta (ßu) is 1. The risk-free rate is 6%. The cost of debt is 8%. The corporate tax rate is 35%. The market risk premium is 4%. Consequently, using the CAPM, the required return on assets is 10%, because Ku = RF + ßu PM = 6% + 4% = 10%. With these parameters, the valuation of this company’s equity, using the above equations, is given in Table 3. The required return on equity (Ke) appears in the second line of the table. The required return on equity (Ke) has been calculated according to Fernández (2004) (see Appendix 1). Equation [3] enables the value of the equity to be obtained by discounting the equity cash flows at the required return on equity (Ke). Likewise, equation [4] enables the value of the debt to be obtained by discounting the debt cash flows at the required return on debt (Kd). The value of the debt is equal to the nominal value (book value) given in Table 1 because we have considered that the...
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This note was uploaded on 05/10/2013 for the course MBA MBA taught by Professor Mba during the Fall '11 term at ESLSCA.

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