Value to Sales ratio = 0.08*1.05*(1-.2083)/(.10.-5) =
1.33
c. Sales fro firm = 5000 *2.5 =
$12,500
Brand name value = (3.78-1.33) (12500) =
$30,624
Problem 3
a. Value of Existing product = 120 million (PVA, 8 years, 11%) =
$617.53
b. Net present value of project = -2500 + 250 (PVA, 16 years, 11%) =
c. Value of the patent
S = 1844.79
K = 2500
t = 16 years
y = 1/16 =
0.0625
Variance = 0.10
Value of the patent = 1844.79 e(-.0625*16) (.6368) - 2500 e (-.06*16) (.1841) =
Problem 4
Column1
TriMedia
Leppard
Combined firm
Cost of Equity
9.60%
10.400%
10.87%
Cost of Debt
4.20%
0.042
4.50%
Debt Ratio
10%
10%
30%
Cost of Capital
9.06%
9.78%
8.96%
Unlevered beta for TriMedia=
0.84375
Unlevered beta for Leppard =
1.03125
Weighted Unlevered Beta = 0.84375(1/3) + 1.03125(2/3) =
0.96875
Levered beta at 30% debt ratio =
1.217857143
FCFF next year for TriMedia : 1000 = X/(.0906-.05); Solve for X
FCFF next year =
$40.60

FCFF next year for Leppard : 2000 = X/(.0978-.05)
FCFF next year =
$95.60
Value of combined firm =(40.6+ 95.6)/(.0898-.05) =
$3,439.39
Valeu of combined firm without synergy =
$3,000.00
Value of Synergy =
$439.39

0 + 4100 + 5000 + 3000
=
13100
69.16%
-$655.21
$256.00

Problem 1
1
2
3
4 (Terminal ye
EBIT
$100.00
$125.00
$156.25
$164.06
Net Cap Ex
$
30.00 $
37.50 $
46.50 $
32.00
Total Working Capital
$
60.00 $
70.00 $
82.00 $
88.00
Cost of Equity
12%
11%
11%
10%
Pre-tax Cost of borrowing
8.00%
7.50%
7%
7%
Debt Ratio
25%
25%
25%
25%
Cash Flows for next 3 years
1
2
3
Terminal year
Tax rate
0
16%
40%
40%
EBIT(1-t)
100
105
93.75
98.436
Net Cap Ex
$
30.00 $
37.50 $
46.50 $
32.00
chg WC
$
8.00 $
10.00 $
12.00 $
6.00
FCFF
$
62.00 $
57.50 $
35.25 $
60.44
Cost of Equity
12%
11%
11%
10%
AT Cost of Debt
8%
6%
4%
4%
Cost of Capital
11.00%
9.83%
9.30%
8.55%
Terminal Value = 60.44/(.0855-.05) =
$
1,702
Value of firm = 62/1.11+77.50/(1.11*1.0983)+35.25/(1.11*1.0983*1.093)+1702/(1.11*1.09833
Problem 2
1
2
3
4
AHP
$100
$120
$144
$173
HA
$60
$69
$79
$91
Combined firm (with synergy)
$172
$203
$239
$282
CF from synergy
$12
$14
$16
$18
Value of AHP=
$
2,894.82
Value of HA =
$
1,542.37
Value of Combined firm=
$
4,745.66
Value of Synergy =
$
308.47
Problem 3
PE Ratio for the industry =
20
! Based upon valuation of 2 billion and net
PEG Ratio for the industry =
2
PEG Ratio for Sysoft =
2.5
! 1.25 times the industry average PEG ratio
PE ratio for Sysoft =
37.5
Value of Sysoft Equity=
3750
Problem 4
a. Value of firm =
$
15,000
PV of Cash flows from developed rese $
3,890
Value of undeveloped reserves =
$
11,110
a. Increase
b. Effect uncertain. Price increase is good, but variance drop is bad.
c. Effect uncertain. Increase in interest rates increases the value of the call, but the PV of oil wil
d. Decrease
Problem 5
a.ROC =
0.075
! ROC = After tax margin* Capital turnove r
Expected Growth Rate
=
0.045
! ROC * Reinvestment Rate
Value of firm
2280
! = 300 (1-.6)(1.045)/(.10-.045)

b.
Restructured Return on Capital =
0.125
New growth rate =
0.05
Value of firm (restructured) =
4725
! = 300 (1-.4)(1.05)/(.09-.05)
Change in firm value =
2445
If you assume that the improvement in margins increases oprating income from existing assets
Restructured Return on Capital =
0.125
New growth rate =
0.05
Value of firm (restructured) =
7875
! = 500 (1-.4)(1.05)/(.09-.05)
Change in firm value =
5595

ear)
3*1.093) =
$
1,407.10
income of 100
o
ll decrease as well (reducing S)
ratio = .03*2.5

s,

Problem 1
Novotel
VideoGraf
ROC
9.60%
0.1125
Reinv Rate
0.520833333 0.444444444
FCFF
46
150
Cost of Capital
9.52%
9.52%
Firm Value
1069.530558
3487.599646
$
4,557.13
b. Value of Synergy
New ROC = (450+160)*.6/((1000+2400)*.8) =
13.46%
New Reinvestment Rate =
0.371584699
New Beta after restructuring =
0.9
New Cost of Equity =
0.1067
New Cost of Capital = 10.67% (0.75) + .08*0.6*.25 =
9.20%
New Value =
5746.579417
Value of Synergy = 5747 - (1070+3488) =
$
1,189.45
Problem 2
Solve for the FCFF used by the analyst
Value of firm prior to liquidity discount = 65/(1-.35) =
100
Cost of Capital used by analyst = 25% (.5) + 5% (.5) =
15%
FCFF used by analyst : 100 = FCFF (1.05)/(.15 - .05) =
$
9.52
Cost of Equity for firm = 5% + 1.1 (6.3%) =
11.93%
Cost of Capital for firm = 11.93% (.9) + 5% (.1) =
11.24%
Firm Value = 9.52 (1.05)/(.1124 - .05) =
$
160.33
Problem 3
a. Talbot's: Low PE, High Growth, Low Risk, High Payout: Best of All Worlds

#### You've reached the end of your free preview.

Want to read all 136 pages?

- Spring '11
- RichardM.Levine
- Cost Of Capital, Valuation, Mathematical finance, Return on capital