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Another way to calculate the value of the equity is

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Unformatted text preview: required return on debt is equal to its cost (8%). Another way to calculate the value of the equity is using equation [1]. The present value of the free cash flows discounted at the WACC (equation [2]) gives us the value of the company, which is the value of the debt plus that of the equity. By subtracting the value of the debt from this quantity, we obtain the value of the equity. Another way of calculating the value of the equity is using equation [6]. The present value of the capital cash flows discounted at the WACCBT (equation [7]) gives us the value of the company, which is the value of the debt plus that of the equity. By subtracting the value of the debt from this quantity, we obtain the value of the equity. The fourth method for calculating the value of the equity is using the adjusted present value, equation [9]. The value of the company is the sum of the value of the unlevered company (equation [10]) plus the present value of the value of the tax shield (VTS). As the required return on equity (Ke) has been calculated according to Fernández (2004), we must also calculate the VTS accordingly: VTS = PV (Ku; D T Ku). The business risk-adjusted equity cash flow and free cash flow (ECF\\Ku and FCF\\Ku) are also calculated using equations [14] and [12]. Equation [13] enables us to obtain the value of the equity by discounting the business risk-adjusted equity cash flows at the required return on assets (Ku). Another way to calculate the value of the equity is using equation [11]. The present value of the business risk-adjusted free cash flows discounted at the required return on assets (Ku) gives us the value of the company, which is the value of the debt plus that of the equity. By subtracting the value of the debt from this quantity, we obtain the value of the equity. IESE Business School-University of Navarra - 7 The economic profit (EP) is calculated using equation [16]. Equation [15] indicates that the value of the equity (E) is the equity’s book value plus the present value of the expected economic profit...
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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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