to be 120 of depreciation capital ex will be 024 BR and deprecn will be 018 BR

To be 120 of depreciation capital ex will be 024 br

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to be 120% of depreciation capital ex will be 0.24 BR and deprec’n will be 0.18 BR. Working Capital 32.15% of Revenues; 32.15% of Revenues; Revenues grow at same rate as earnings in both periods. Debt Ratio 39.01% of net capital ex and working capital investments come from debt.
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Aswath Damodaran 47 Aracruz: Estimating FCFE for next 5 years 1 2 3 4 5 Terminal Earnings BR 0.222 BR 0.243 BR 0.264 BR 0.288 BR 0.314 BR 0.330 - (CapEx-Depreciation)*(1-DR) BR 0.042 BR 0.046 BR 0.050 BR 0.055 BR 0.060 BR 0.052 -Chg. Working Capital*(1-DR) BR 0.010 BR 0.011 BR 0.012 BR 0.013 BR 0.014 BR 0.008 Free Cashflow to Equity BR 0.170 BR 0.186 BR 0.202 BR 0.221 BR 0.241 BR 0.269 Present Value BR 0.154 BR 0.152 BR 0.150 BR 0.149 BR 0.147 The present value is computed by discounting the FCFE at the current cost of equity of 10.33%.
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Aswath Damodaran 48 Aracruz: Estimating Terminal Price and Value per share n The terminal value at the end of year 5 is estimated using the FCFE in the terminal year. The FCFE in year 6 reflects the drop in net capital expenditures after year 5. n Terminal Value = 0.269/(.125-.05) = 3.59 BR n Value per Share = 0.154 + 0.152 + 0.150 + 0.149 + 0.147 + 3.59/1.1033 5 = 2.94 BR n The stock was trading at 2.40 BR in September 1997. n The value per share is based upon normalized earnings. To the extent that it will take some time to get t normal earnings, discount this value per share back to the present at the cost of equity of 10.33%.
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Aswath Damodaran 49 The FCFE Model: A Visual Perspective <-Int. Rate & Default Risk Financing Decisions (D/E) Investment Decisions (ROA) Current EPS Net CapEx (1-D/(D+E)) Extraordinary Items - Currency Changes - Interest Rate Changes - Warrant/Option Exercise - Pension Liabilities Extraordinary Gains/Losses FCFE/share Total Risk Market Risk Firm-Specific Risk Dividend Decisions (Payout=1-b) Expected Growth Rate g = b (ROA + D/E (ROA - i)) Beta Cost of Equity ke = Rf + β (Risk Premium) Expected EPS Year Chg. WC (1-D/(D+E)) 1 $1.85 $0.00 $2.63 2 $2.09 $1.88 $0.00 $2.97 3 $7.84 $2.37 $2.12 $0.00 $3.36 4 $8.86 $2.67 $2.40 $0.00 $3.79 5 $10.02 $3.02 $0.00 $4.29 Pn = $7.63 /(.145 - .06) = $89.72 Value Per Share = PV of DPS + PV of Terminal Price = PV of FCFE + PV of Terminal Price <-Project Risk <-Uncertainty associated with extraordinary items THE VALUE OF EQUITY IN NCR Rating Constraint -> Earnings Stability Constraints-> Expected Future Cash Flows Discount Rate Terminal Price Desire for Dividend Stability Current Net CapEx WC % $6.14 $6.94 D/(D+E) 1.15 =9.0%+1.15*5.5%=15.33% $54.50 26 % 16.56% 8.98% $5.43 NCx=$1.79 WC=15% $1.66 $2.71 T Yr $10.62 $1.58 $1.41 $0.00 Beta=1.00 Growth =6% CapEx is 120% of Depr =0.74(.1656+.0898(.1656-.0745(.66)))
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Aswath Damodaran 50 DDM and FCFE Values n Most firms can be valued using FCFE and DDM valuation models. Which of the following statements would you most agree with on the relationship between this two values? o The FCFE value will always be higher than the DDM value o The FCFE value will usually be higher than the DDM value o The DDM value will usually be higher than the FCFE value o The DDM value will generally be equal to the FCFE value
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Aswath Damodaran 51 Disney Valuation n Model Used: Cash Flow: FCFF (since I think leverage will change over time) Growth Pattern: 3-stage Model (even though growth in operating income is only 10%, there are substantial barriers to entry)
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Aswath Damodaran 52 Disney: Inputs to Valuation High Growth Phase Transition Phase Stable Growth Phase Length of Period 5 years
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