Corporate Finance: Instructor\'s Manual Applied Corporate Finance

Aswath Damodaran 361 Implementing the APV Approach ! Step 1 : Estimate the unlevered firm value. This can be done in one of two ...

Aswath Damodaran 362 Estimating Expected Bankruptcy Cost ! Probability of Bankruptcy Estimate the synthetic rating that the fir ...

Aswath Damodaran 363 Ratings and Default Probabilities: Results from Altman study of bonds Bond Rating Default Rate D 100. 00 % ...

Aswath Damodaran 364 Disney: Estimating Unlevered Firm Value Current Market Value of the Firm = $ 55 , 101 +$ 14 , 668 = $ 69 , ...

Aswath Damodaran 365 Disney: APV at Debt Ratios Debt Ratio $ Debt Tax RateUnlevered Firm ValueTax BenefitsBond RatingProbability ...

Aswath Damodaran 366 III. Relative Analysis I. Industry Average with Subjective Adjustments ! The “safest” place for any firm to ...

Aswath Damodaran 367 Comparing to industry averages Disney Entertainment Aracruz Paper and Pulp (Emerging Market) Market Debt Ra ...

Aswath Damodaran 368 Getting past simple averages: Using Statistics ! Step 1 : Run a regression of debt ratios on the variables ...

Aswath Damodaran 369 Applying the Regression Methodology: Entertainment Firms ! Using a sample of entertainment firms, we arrive ...

Aswath Damodaran 370 Extending to the entire market: 2003 Data ! Using 2003 data for firms listed on the NYSE, AMEX and NASDAQ d ...

Aswath Damodaran 371 Applying the Regression Lets check whether we can use this regression. Disney had the following values for ...

Aswath Damodaran 372 Stage 2 Rapid Expansion Stage 1 Start-up Stage 4 Mature Growth Stage 5 Decline IV. The Debt-Equity Trade of ...

Aswath Damodaran 373 Summarizing for Disney Approach Used Optimal 1 a. Cost of Capital unconstrained 30 % 1 b. Cost of Capital w ...

Aswath Damodaran 374 A Framework for Getting to the Optimal Is the actual debt ratio greater than or lesser than the optimal deb ...

Aswath Damodaran 375 Disney: Applying the Framework Is the actual debt ratio greater than or lesser than the optimal debt ratio? ...

Aswath Damodaran 376 ! Application Test: Getting to the Optimal ! Based upon your analysis of both the firm’s capital structure ...

Aswath Damodaran 377 Designing the Perfect Debt ...

Aswath Damodaran 378 Designing Debt: The Fundamental Principle ! The objective in designing debt is to make the cash flows on de ...

Aswath Damodaran 379 Firm with mismatched debt Note that the firm goes bankrupt in the two periods, when the firm value falls be ...

Aswath Damodaran 380 Firm with matched Debt The same firm never goes bankrupt, even though it has borrowed a lot more. ...