Using information about the following company, calculate the share premium / (discount) a private equity house will be willing to pay for the Company. Assume pre deal net debt is refinanced. Assume the company has no dilutive securities. Required IRR 21.6% Total debt immediately after the LBO 550.5 Exit multiple (EV/EBITDA) 8.4 x EBITDA % growth per year 7.5% Exit year % of debt remaining at exit Current share price Shares outstanding LTM EBITDA Pre deal net debt 3 57.2% 16.9 45.2 157.9 251.8

Using information about the following company, calculate the share premium / (discount) a private equity house will be willing to pay for the Company. Assume pre deal net debt is refinanced. Assume the company has no dilutive securities. Required IRR 21.6% Total debt immediately after the LBO 550.5 Exit multiple (EV/EBITDA) 8.4 x EBITDA % growth per year 7.5% Exit year % of debt remaining at exit Current share price Shares outstanding LTM EBITDA Pre deal net debt 3 57.2% 16.9 45.2 157.9 251.8

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter9: The Cost Of Capital

Section9.8: The Weighted Average Cost Of Capital (wacc)

Problem 3ST

See similar textbooks

Similar questions

Q1. A company is contemplating acquisition of Target firm ABC ltd with following Financials. WACC Inputs Weight of Debt Weight of Equity Cost of Debt Risk-Free Rate Beta Market Risk Premium Tax Rate Free Cash Flow data (In inr millions) EBIT 31% 69% 3.50% 5.00% 1.15 7% 30% 7,000 750 450 750 8% Steady State Growth rate 2% Determine the value of target firm as per DCF-Discounted cash flow analysis? (10) Depreciation & Amortization Capital Expenditure Change in Working Capital Growth rate 8% in forecasted five year period
Cost of equity Cost of Debt Method 1 25.11% (According to dividend growth model) 2.31% Method 2 3.11% (According to CAPM model approach) 4.57% a. If you have to select one of the methods from above, which one would you choose and why? b. If you would be prospective investor, would you invest in Almarai Co. shares or bonds? Specify the reason.
Estimate the Cost of Capital for Company XYZ based on the information below. $50.00 $1.60 Stock price: Dividend: Beta: 1.29 Shares outstanding: 5-year dividend growth: 100,000,000 7.55% Risk-free rate: 0.60% Market risk premium: 7.00% Debt Information (bonds outstanding) Book Value "Quoted Price" Maturity YTM $800,000,000 3/15/2025 4.0% 99.00 $200,000,000 2/1/2027 4.5% 130.00 $500,000,000 9/1/2042 5.0% 95.00 $900,000,000 10/15/2044 5.5% 90.00
Stock price Shares outstanding (millions) Mkt value Debt (millions) Capitalization (book value) Debt Equity Beta Target D/E Cost of debt Market Info Risk-free rate Comparable Company 10 1,000 10,000 20.00% 80.00% 1.40 n/a 6.50% 4.00% Market Risk Premium 5.00% Company A n/a n/a n/a 25.00% 75.00% n/a 0.80 5.00% Required: Use the relevant Comparable Company and Company A to calculate the WACC for Company A Assume the tax rate for both companies is 30%.
The following data pertains to Xena Corp. Xena Corp. Total Assets $21,249 Interest-Bearing Debt (market value) $11,070 Average borrowing rate for debt 10.2% Common Equity: Book Value $5,535 Market Value $23,247 Marginal Income Tax Rate 19% Market Beta 1.64 A. Using the information from the table, and assuming that the risk-free rate is 4.5% and the market risk premium is 6.2%, calculate Xena's weighted-average cost of capital: B. Using the information from the table, determine the weight on equity capital that should be used to calculate Xena's weighted-average cost of capital.
The following data pertains to Xena Corp. Xena Corp. Total Assets $21,249 Interest-Bearing Debt (market value) $11,070 Average borrowing rate for debt 10.2% Common Equity: Book Value $5,535 Market Value $23,247 Marginal Income Tax Rate 19% Market Beta 1.64 A. Using the information from the table, and assuming that the risk-free rate is 4.5% and the market risk premium is 6.2%, calculate Xena's cost of equity capital, using the capital asset pricing model: B. Using the information from the table, determine the weight on debt capital that should be used to calculate Xena's weighted-average cost of capital.
You are given the following information for Golden Fleece Financial: Long-term debt outstanding: Current yield to maturity (rdebt) : Number of shares of common stock: Price per share: Book value per share: Expected rate of return on stock (requity : Cost of capital $ 450,000 % 8% 17,500 $ 50.50 Calculate Golden Fleece's company cost of capital. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. $29 15%
5. You are given the following information for company's Financial: Long-term debt outstanding: Current yield to maturity (r debt): Number of shares of common stock: Price per share: Book value per share: Expected rate of return on stock (requity): a) Computed company's cost of capital. Ignore taxes. $300,000 8% 10,000 $50 $25 15%
INPUTS (In millions) Free cash flow Marketable Securities Notes payable (short-term debt) Long-term bonds Preferred stock WACC Number of shares of stock Free cash flow Long-term constant growth in FCF Horizon value PV of horizon value 3 Value of operations 4 Plus value of narketable securities 5 Total value of company Current 0 a. Calculate the estimated horizon value (i.e., the value of operations at the end of the forecast period immediately after the Year-4 free cash flow). Assume FCFs grow constantly after year 3. 3 PV of FCF 9 Value of operations (PV of FCF + - HV) 0 1 c. Calculate the estimated Year-0 price per share of common equity. 2 6 Less value of debt 7 Less value of preferred stock 8 $40 $100 $300 $50 9.00% 40 Estimated value of common equity 9 Divided by number of shares 0 Price per share 1 Current 0 1 -$20.0 Year 1 -$20.0 Projected 2 $20.0 b. Calculate the present value of the horizon value, the present value of the free cash flows, and the estimated 5 Year-0 value of…
Here is some information about Stokenchurch Incorporated: Beta of common stock = 2.0 Treasury bill rate=4% Market risk premium = 8.3% Yield to maturity on long-term debt = 6% Book value of equity = $520 million Market value of equity = $1,040 million Long-term debt outstanding = $1,040 million. Corporate tax rate = 21% What is the company's WACC? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. WACC %
Assuming the following: 1. 4mm outstanding shares 2. $40mm of pre-tax Net Income 3. $9mm of Depreciation 4. PE multiple of 16x 5. $1.75 quarterly dividend which is expected to grow by 4.23% 6. Book value of $115mm 7. Current share price of $125 8. Tax rate of 25% 9. EBITDA Multiple of 7x. What is the market value of equity? A form of the correct answer would be $53mm.
You are given the following information regarding UFSK limited, a listed entity. •i ea\rmoo Number of outstanding shares 100 000 Earnings 300 000 Retention ratio 91-day Treasury bill rate Market risk premium UFSK Beta Dividend growth rate stable phase 5% Bonds outstanding Par value per bond Semi-annual coupon rate on bonds 6% Bond yield to maturity 60% 6% 8% 1.2 5 000 1000 8% Bond years remaining to maturity 4 Corporate tax rate 30% Additional information • UFSK limited recently paid a dividend • UFSK recently signed a deal and expects a super normal growth in earnings. The company expects earnings to grow by 8% for the first two years then decline by 2% in the following year, there after a stable growth of 5% is expected into the future. Required: a) As an investment analyst advise your client how much must she expect to pay for UFSK limited stock. b) Ascertain the market value of UFSK limited equity. c) Determine the fair value of UFSK limited bond d) Determine the total value of the…