Loose Ends II.

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Presentation transcript:

Loose Ends II

Debt and Value You have just completed a firm valuation (discounting cash flows to the firm at the cost of capital) of a publicly traded company and arrived at a value of $100 million. The firm has debt outstanding, with a face value of $100 million and a market value of $ 80 million. What is the value of equity in this firm? $ 200 million $ 0 Some number in the middle

Management Options Assume that you have valued equity in a firm to be worth $ 1 billion, by discounting free cash flows to equity at the cost of equity. The firm has 100 million shares outstanding. What is the value per share? Now assume that the firm grants 10 million options to its CEO, with a strike price set equal to $ 10. What is the value per share? $ 9.09 (1000/110) $ 10 (The options have no exercise value) Between $9.09 and $ 10 Something else