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The eva economic value added is calculated using

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Unformatted text preview: (EP) discounted at the required return on equity (Ke). The EVA (economic value added) is calculated using equation [18]. Equation [17] indicates that the equity value (E) is the present value of the expected EVA discounted at the weighted average cost of capital (WACC), plus the book value of the equity and the debt (Ebv0+ N0) minus the value of the debt (D). The risk-free-adjusted equity cash flow and free cash flow (ECF\\RF and FCF\\RF) are also calculated using equations [22] and [20]. Equation [21] enables us to obtain the value of the equity by discounting the risk-free-adjusted equity cash flows at the risk-free rate (RF). Another way to calculate the value of the equity is using equation [19]. The present value of the riskfree-adjusted free cash flows discounted at the required return on assets (RF) 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. Table 3 shows that the result obtained with all ten valuations is the same. The value of the equity today is 3,958.96. As we have already mentioned, these valuations have been performed according to the Fernández (2004) theory. The valuations performed using other theories are discussed further on. Table 3 Valuation of Toro Inc. No Cost of Leverage 0 equation [1] [2] Ku Ke E+D = PV(WACC;FCF) WACC [1] - D = E 1 2 3 4 5 10.00% 10.49% 5,458.96 9.04% 3,958.96 10.00% 10.46% 5,709.36 9.08% 4,209.36 10.00% 10.42% 6,120.80 9.14% 4,620.80 10.00% 10.41% 6,264.38 9.16% 4,764.38 10.00% 10.41% 6,389.66 9.16% 4,859.66 10.00% 10.41% 6,517.46 9.16% 4,956.86 [3] E = PV(Ke;ECF) 3,958.96 4,209.36 4,620.80 4,764.38 4,859.66 4,956.86 [4] D = PV(CFd;Kd) 1,500.00 1,500.00 1,500.00 1,500.00 1,530.00 1,560.60 [6] [7] D+E = PV(WACCBT;CCF) WACCBT [6] - D = E 5,458.96 9.81% 3,958.96 5,709.36 9.82% 4,209.36 6,120.80 9.83% 4,620.80 6,264.38 9.83% 4,764.38 6,389.66 9.83% 4,859.66 6,517.46 9.83% 4,956.86 VTS = PV(Ku;D T Ku) Vu = PV(Ku;FCF) VTS + V...
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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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