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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 riskfreeadjusted 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 riskfreeadjusted equity cash flows at the riskfree rate (RF). Another
way to calculate the value of the equity is using equation [19]. The present value of the riskfreeadjusted 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.
 Fall '11
 MBA
 Business

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