Sensitivity of equity value to discount rate : Discount rate Equity value 8.00% $ %

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Presentation transcript:

Sensitivity of equity value to discount rate : Discount rate Equity value 8.00% $ 75.80 8.50% 67.85 9.00% 61.25 9.50% 55.68 10.00% 50.92 10.50% 46.81 11.00% 43.22 11.17% 42.09 11.50% 40.07 12.00% 37.27

notes payable ＋ current long-term debt ＋ long-term debt 2011 2012 1572.7 1572.7×1.03＝1619.88 r＝12% g＝3% notes payable ＋ current long-term debt ＋ long-term debt ＝ 855.3 ＋ 5.4 ＋ 435.9 ＝ 1296.6

ri ＝ rf＋β(rm－rf) ＝ 5.74＋0.8×5.9 ＝ 10.46 ≒ 10.5

WACC ＝ Kd(1－t) × D/(D＋E) ＋ Ke × E/(D＋E) cost of debt after adjusting for tax 2.7% ＝ 4.3% × (1－ tax rate) ＝ 4.3% × (1-38%) WACC ＝ Kd(1－t) × D/(D＋E) ＋ Ke × E/(D＋E) ＝ 2.7% × 27.0% ＋ 10.5% × 73.0% ＝ 8.4%

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