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Finance Data policy and value

The document presents a financial analysis comparing three capital structures: 0% debt and 100% equity, 25% debt and 75% equity, and 50% debt and 50% equity. It includes metrics such as book and market values of debt and equity, WACC, free cash flow, and net income, illustrating how changes in debt levels affect overall financial performance and valuation. The analysis concludes with share repurchase effects and resulting share prices for each capital structure scenario.

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sajawal zaman
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6 views1 page

Finance Data policy and value

The document presents a financial analysis comparing three capital structures: 0% debt and 100% equity, 25% debt and 75% equity, and 50% debt and 50% equity. It includes metrics such as book and market values of debt and equity, WACC, free cash flow, and net income, illustrating how changes in debt levels affect overall financial performance and valuation. The analysis concludes with share repurchase effects and resulting share prices for each capital structure scenario.

Uploaded by

sajawal zaman
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Question 1

Name 0% Debt&100% Equity 25% Debt&75% Equity 50% Debt&50% Equity


Book value of debt - 2,500.00 5,000.00
Book value of equity 10,000.00 7,500.00 5,000.00
Market value of debt - 2,500.00 5,000.00
Market value of equity 10,000.00 8,350.00 6,700.00
Pretax cost of debt 5.00% 5.00% 5.00%
After-tax cost of debt 3.30% 3.30% 3.30%
Market value weights of Debt 0% 0.23 0.43
Market value weights of Equity 100% 0.77 0.57
Levered beta 0.80 0.96 1.19
Risk-free rate 5.0% 5.0% 5.0%
Market premium 6.0% 6.0% 6.0%
Cost of equity 0.10 0.11 0.12
Weighted-average cost of capital (WACC) 0.10 0.09 0.08
EBIT 1,485.00 1,485.00 1,485.00
Taxes (@ 34%) (504.90) (504.90) (504.90)
EBIAT 980.10 980.10 980.10
Depreciation 500.00 500.00 500.00
Capital expenditure (500.00) (500.00) (500.00)
Change in net working capital - - -
Free cash flow (FCF) 980.10 980.10 980.10
Value of assets (FCF/WACC) 10,001.02 10,851.11 11,701.19

Question 2
Category 0% Debt&100% Equity 25% Debt&75% Equity 50% Debt&50% Equity
Cash flow to creditors:
Interest - 125.00 250.00
Pretax cost of debt 5.0% 5.0% 5.0%
Value of debt: (Int/Kd) 2,500.00 5,000.00
Cash flow to shareholders:
EBIT 1,485.00 1,485.00 1,485.00
Interest - (125.00) (250.00)
Pretax profit 1,485.00 1,360.00 1,235.00
Taxes (@ 34%) (504.90) (462.40) (419.90)
Net income 980.10 897.60 815.10
+ Depreciation 500.00 500.00 500.00
- Capital expenditure (500.00) (500.00) (500.00)
+ Change in net working capital - - -
- Debt amortization - - -
Residual cash flow (RCF) 980.10 897.60 815.10
Cost of equity 9.80% 10.75% 12.16%
Value of equity (RCF/Ke) 10,001.02 8,350.93 6,700.82

Value of equity plus value of debt 10,001.02 10,850.93 11,700.82

Question 3
0% Debt&100% Equity 25% Debt&75% Equity 50% Debt&50% Equity
Name
EBIT 1485 1485 1485
Taxes (@ 34%) (505.00) (505.00) (505.00)
EBIAT 980.00 980.00 980.00
+ Depreciation 500.00 500.00 500.00
- Capital exp. (500.00) (500.00) (500.00)
+ Change in net working capital - - -
Free cash flow 980.00 980.00 980.00
Unlevered beta 0.8 0.8 0.8
Risk-free rate 5.0% 5.0% 5.0%
Market premium 6.0% 6.0% 6.0%
Unlevered WACC (CAPM) 9.80% 9.80% 9.80%
Value of pure business flows (FCF/Unlevered WACC) 10,000.00 10,000.00 10,000.00
Financing cash flows: Interest 0 125 250
Financing cash flows: Tax reduction 0 42.5 85
Pretax cost of debt 5.0% 5.0% 5.0%
Value of financing effect (Tax reduction/Pretax cost of debt) 850 1700
Total value (Sum of values of pure business flows and financing effects) 10,000.00 10,850.00 11,700.00

Question 4
0% Debt&100% Equity 25% Debt&75% Equity 50% Debt&50% Equity
Metrics

Total Market Value of Equity 10,000.00 8,350.00 6,700.00


Cash Paid out= New debt raised (Assump) - 2,500.00 5,000.00
Repurchased Shares 2,500.00 5,000.00
Original Shares 1000 1000 1000
Shares after repurchase 1,000.00 750.00 500.00
Share Price 10 11.13 13.4

Price per Share 10.00

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