Aswath Damodaran 171
Estimating Market Value Weights
! Market Value of Equity should include the following
- Market Value of Shares outstanding
- Market Value of Warrants outstanding
- Market Value of Conversion Option in Convertible Bonds
! Market Value of Debt is more difficult to estimate because few firms have
only publicly traded debt. There are two solutions:
- Assume book value of debt is equal to market value
- Estimate the market value of debt from the book value
- For Disney, with book value of 13 , 100 million, interest expenses of $ 666 million,
a current cost of borrowing of 5. 25 % and an weighted average maturity of 11. 53
years.
Estimated MV of Disney Debt =
!
666
( 1 "^1
(1.0525)11.53
.0525
#
$
%
%
%
%
&
'
(
(
(
(
+^13 ,^100
(1.0525)11.53
=$12, 915 million
The market value of debt is estimated by considering all debt as if it were one
large coupon bond.
The average maturity of debt can be obtained from the 10-K. For Disney in
September 2004, the face-value weighted maturity in 2004 was 11.53 years...
