Monday, June 10, 2019
Finance and accounting Case Study Example | Topics and Well Written Essays - 1250 words
Finance and accounting - Case Study ExampleThe WACC reflects the aggregate represent to the financial institution with regard to the company. It is the treasure that represents the total return that is required by equity or debt holders against the investment in the firm. The risk free- place is the interest rate charged on the treasury bonds to reflect the bonds of the government as the price that is risk-free. The beta of the firm measures the risk of the stock and was taken based on the norm of the industry. The average beta factor that is used is 0.78. The additional information that facilitated the qualification include the working capital averagely 28.1%, the risk-free interest 4.25% respect to a levy shield of 40% and address of equity 7.79%. The above information facilitated the computation of WACC which in this case is 8.33% in the excel file. Cash flows are computed by EBIT (1-Tax rate) + derogation Net working capital. We shall consider using the average present val ue so the Future Cash flows are discounted by using equity cost of capital. For discounting the terminal value, the WACC is used considering that after 5 years, the company leverage ratio will be constant and in conforming with the competitors in the industry. The present value of equity affiliates is computed by multiplying it with the average price to Earnings ratio. The un-levered cost of capital for computation of the firm is 7.37%. Because dividend to earnings ratio is changing from one year to the other, the correct present value is the best method for valuation of the firm.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.