Ch_09_Firm_And_Project_Val
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F IRM A ND P ROJECT V ALUATION
Five Equivalent Methods Inputs
Valuation Object
1Date 0 Proj Investment or Firm Cap
$360.00Tax Rate
40.0%Unlevered Cost of Equity Capital
10.0%Riskfree Rate=Cost of Riskfree Debt
3.0%Inf Horiz Growth Rate of Unlev Equity
5.0%Include Infinite Horizon?
1Cash Flows
2nd Stage:Infin Horiz Date
0123456Revenues
$550.00$590.00$620.00$655.00$675.00$740.00Expenses
$410.00$435.00$445.00$470.00$470.00$475.00Gross Earnings
Depreciation
$60.00$60.00$60.00$60.00$60.00$85.00Earnings Bef Interest & Tax (EBIT)
Interest Expense
Earnings Before Tax
Taxes
Earnings
Add Back Depreciation
Cash Flow from Operations
New Invest in Plant and Equipment
($30.00)($30.00)($30.00)($30.00)($30.00)($30.00)After-Tax Salvage Value
$0.00New Invest in Working Capital
($10.00)($10.00)($10.00)($10.00)($10.00)($10.00)Cash Flows from Investments
New Borrowing (Repayment)$5.00$5.00$5.00$5.00$5.00
First Stage: Finite Horizon Firm Project Valuation Object Yes No Infinite Horiz
Free Cash Flow to Equity (FCFE) = Dividends
Interest
Less New Borrowing (Repayment) Cash Flow to Debtholders (CFD)
Tax Shield Benefit
Free Cash Flow to the Firm (FCFF)
Alternative Way to get FCFF Earnings
After-tax Interest Expense
Net Oper. Profit After Tax (NOPAT)
Depreciation
Cash Flows from Investments
Free Cash Flow to the Firm (FCFF)
Debt (D)$250.00
Book Value of Equity
Economic Profit
Net Oper. Profit After Tax (NOPAT)
Capital Charge
Economic Profit
(1.) Adjusted Present Value (APV)2nd Stage:
First Stage: Finite Horizon
Infin Horiz
Date0123456 Free Cash Flow to the Firm (FCFF)
Value of the Unlevered Firm
Tax Shield Benefit
Value of the Tax Shield Benefit
Value of the Firm (APV Method)
- Date 0 Firm Capital
Value Added by Firm (APV Method)
(2) Free Cash Flow to Equity (FCFE)2nd Stage:
First Stage: Finite Horizon
Infin Horiz Date0123456
Inf Horiz Growth Rate of Lev Equity
Debt + Equity (D+E)
Equity (E)
Levered Cost of Equity Capital
Free Cash Flow to Equity (FCFE)
Value of Equity (E)
Cash Flow to Debtholders (CFD)
Value of Debt (D)
Value of the Firm (FCFE Method)
- Date 0 Firm Capital
Value Added by Firm (FCFE Method)
(3) Free Cash Flow to the Firm (FCFF)2nd Stage:
Infin Horiz Date
0123456
Inf Horiz Growth Rate of the Firm
Equity Weight (E / (D+E))
Debt Weight (D / (D+E))
Cost of Firm Capital (WACC)
Free Cash Flow to the Firm (FCFF)
Value of the Firm (FCFF Method)
- Date 0 Firm Capital
Value Added by Firm (FCFF Method)(4) Dividend Discount Model (DDM)
2nd Stage:Infin Horiz Year
0123456
Dividend
Value of Equity (E)
Cash Flow to Debtholders (CFD)
Value of Debt (D)
Value of the Firm (DDM Method)First Stage: Finite Horizon First Stage: Finite Horizon