Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )

Year

Commitment

($millions)

Present Value

($millions)

6–9 258.25 704.93

Debt value of

leases

1,752.85

Addingthedebtvalueofoperatingleasestothemarketvalue
ofdebtof$12,915millionyieldsatotalmarketvaluefordebt
of$14,668millionatDisney.Usedinconjunctionwiththe
market value of equityof $55,101 million,we arrive ata
marketdebt-to-capitalratioof21.02%.Toprovideacontrast,
considerthedebtratioswewouldhaveobtained ifwehad
used thebook valuesof $13,100 million forthe debtand
$24,219millionforequity.Theresultingdebt-to-capitalratio
would have been 35.10%.

Can Financing Weights Change over Time?

Usingthecurrentmarketvaluestoobtainweightswillyielda
cost of capital for the current year. But can the weights
attachedtodebtandequity,andtheresultingcostofcapital,
changefromyeartoyear?Absolutely,andespeciallyinthe
following scenarios.

Young Firms

Youngfirmsoftenareallequityfundedlargelybecausethey
donothavethecashflows(orearnings)tosustaindebt.As
theybecomelarger,increasingearningsandcashflowusually
allowformoreborrowing.Whenanalyzingfirmsearlyinthe
lifecycle,weshouldallowforthefactthatthedebtratioof