di-0451-e

Di-0451-e

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Unformatted text preview: ns change. The expression of the WACC in this case is: [2*] WACC = E Ke + D Kd - N r T E+D The expression relating the ECF to the FCF is: [5*] ECFt = FCFt + (Nt - Nt-1) - Nt-1 rt (1 - T) The expression relating the CCF to the ECF and the FCF is: [8*] CCFt = ECFt + CFdt = ECFt - (Nt - Nt-1) + Nt-1 rt = FCFt + Nt-1 rt T Fernández (2004) WACC VTS FCFt\\Ku Ku - N rT + DT(Ku - Kd ) ( E + D) Damodaran (1994) Ku - N rT + D[T(Ku - R F ) − (Kd − R F )] ( E + D) Practitioners’ Ku - N rT - D(Kd − R F ) ( E + D) PV[Ku; DTKu + T(Nr-DKd)] PV[Ku; T N r +DT(Ku- RF) - D(Kd- RF)] PV[Ku; T N r - D(Kd- RF)] FCFt +Dt-1 Kut T + + T (N t-1 rt-D t-1 Kdt) FCFt + Dt-1 Kut T +T(N t-1 rt-D t-1 Kdt) - Dt-1 (Kdt - RF t) (1-T) FCFt +T (N t-1 rt-D t-1 Kdt) + + Dt-1 [RF t -Kdt (1-T)] 24 - IESE Business School-University of Navarra Appendix 3 (continued) Myers (1974) Harris-Pringle (1985) Ruback (1995) N rT (E + D) WACC Ku - VTS FCFt\\Ku Ku - PV[Ku; T N r] FCFt +T N t-1 rt VTS(Ku - Kd) + N rT ( E + D) PV[Kd; T N r] FCFt +T N r +VTS (Ku -Kd) Miles-Ezzell (1980) Ku - N rT 1 + Ku (E + D) 1 + Kd PV[Kut ; Nt-1 rt T] (1 + Ku) / (1+ Kd) FCF +T N r (1+Ku) / (1 + Kd) Equations common to all the methods: WACC and WACCBT: W ACC t = E t -1 Ket + D t-1 Kd t - N t-1 rt T (E t-1 + D t-1 ) W ACC BTt - W ACC t = W ACCBTt = E t-1 Ket + D t-1 Kd t (E t-1 + D t-1 ) Nt-1 rt T ( E t-1 + D t-1 ) Relationships between the cash flows: ECFt = FCFt + (Nt - N t-1 ) - Nt-1rt (1- T) CCFt = F CFt + Nt-1rt T CCFt = ECFt - (N t - N t-1 ) + N t-1rt IESE Business School-University of Navarra - 25 Appendix 4 Dictionary ßd = Beta of debt ßL = Beta of levered equity ßu = Beta of unlevered equity = beta of assets D = Value of debt E = Value of equity Ebv = Book value of equity ECF = Equity cash flow EP = Economic profit EVA = Economic value added FCF = Free cash flow g = Growth rate of the constant growth case I = Interest paid Ku = Cost of unlevered equity (required return on unlevered equity) Ke = Cost of levered equity (required return on levered equity) Kd = Required return on debt = cost of debt N = Book value of the debt NOPAT = Net operating profit after tax = profit after tax of the unlevered company PAT = Profit after tax PBT = Profit before tax PM = Market premium = E (RM - RF) PV = Present value r = Cost of debt RF = Risk-free rate T = Corporate tax rate VTS = Value of the tax shield Vu = Value of equity in the unlevered company WACC = Weighted average cost of capital WACCBT = Weighted average cost of c...
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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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