Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )
increasingfunctionofthespreadbetweenthetwonumbers. Conversely, the number will be negative if the return on capital is less than ...
Thevalueofthefirmobtainedbydiscountingfreecashflows tothefirmatthecostofcapitalis$170.85,whichisidentical to the value obtained ...
High-Growth Phase Stable-Growth Phase Expected growth rate 5.49% 3.41% Cost of capital Inputs Beta 0.93 1.00 Cost of debt 4.17% ...
Thepresent valueof EVA over thehigh-growth period is =C539.81million.Togettothevalueoftheoperatingassets of the firm, we add two ...
TogetthesamevaluefromdiscountedcashflowandEVA valuations,wehaveto ensurethatthefollowingconditions hold. Theafter-taxoperatingi ...
We have to make consistent assumptions about terminalvalueinourdiscountedcashflowandEVA valuations.In thespecial case,wherether ...
TheopeningsalvointhisdebatewasfiredbyMertonMiller and Franco Modigliani intheir seminal paperpublishedin 1958, 13 wheretheyshowe ...
actions that increase financial leverage (such as stock buybacks funded with debt) increase firm value, which suggests that valu ...
and is a function ofthe firm’s cash flowsand its cost of capital. If we assume that the cash flows to the firm are unaffectedby ...
Thecostofdebtforafirmisafunctionofthefirm’sdefault risk.Asafirmborrowsmore,itsdefaultriskwillincreaseand sowillthecostofdebt.Ifw ...
Second, the pretax operating income is assumed to be unaffectedbythefirm’sfinancingmixand,byextension,its bondrating.If theopera ...
Debt RatioBetaCost of Equity 70 2.2013.21 80 3.3718.44 90 6.7433.46 The levered betas are estimated using the levered beta equat ...
There aretwopoints to make aboutthis computation. We assume that at every debt level, all existing debt will be refinancedatthen ...
beforeinterestandtaxes.Toillustratethispoint,notethatthe earnings beforeinterest and taxesat Titan Cement is 232 millioneuros.As ...
Thereasonforminimizingthecostofcapitalisthatdoingso maximizesthevalueofthefirm.Valuingtheexpectedcash flows in Illustration 6.2 ...
benefitsandaddingbacktheexpectedbankruptcycostfrom the existing debt. The only components that change as a firm changes its leve ...
Wecomputethevalueoftheleveredfirmatdifferentlevels of debt. The debt level that maximizes the value of the levered firm is the o ...
earningsbeforeinterestandtaxes.Theadjustmenttothetax ratewasdescribed morefullyearlierinthecost of capital approach.Theexpectedt ...
The firmvalue is optimized at about 40% debt,which is consistent with theresults of thecost of capital approach. Theseresultsare ...
assumptions,theAPVandthecostofcapitalconclusionsgive identical answers. However, the APV approach is more practicalwhenfirmsaree ...
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