45 Ifthefirmhasoperating leasesoutstanding, theinterest
coverage ratio should be modified.
The lease expense should be the current year’s lease expense.
46 Thistablewasupdatedinearly2004,bylistingallrated
firms with market capitalization lower than$2 billion and
theirinterestcoverageratios,andthensortingfirmsbasedon
their bond ratings. The ranges were adjusted to eliminate
outliers and to prevent overlapping ranges.
47 Thesedefaultspreadsareobtainedfromanonlinesiteat
http://www.bondsonline.com. You can find default spreads for
industrial andfinancial servicefirms;thesespreads arefor
industrial firms.
48 Atthisconversionratio,thepricethatinvestorswouldbe
payingforDisneyshareswouldbe$29.46,muchhigherthan
the stock price of $20.46 prevailing at the time of the
analysis.
49 Thisratewasbasedona10-yearTreasurybondrate.Ifthe
20-yearTreasurybondratehadbeensubstantiallydifferent,
wewouldhaverecomputedapretaxcostofdebtbyadding
the default spread to the 20-year rate.
50 Thecouponsareassumedtobeannual.Withsemiannual
coupons, you would divide the coupon by 2 and apply a
semiannual rate to calculate the present value.