## Exercises: Valuation

公司金融代考 N.B. Unless stated otherwise, firms are subject to corporate taxes at the rate TC = 30%. 1. Are the following statements correct?

N.B. Unless stated otherwise, firms are subject to corporate taxes at the rate TC = 30%.

### 1 Valuation 公司金融代考

1. Are the following statements correct?

(a) In the APV method, cash-flows are discounted at the unlevered cost of equity.

(b) If a firm has 0 debt, there is no difference between APV, FTE and WACC valuation methods.

(c) When valuing with the WACC, one implicitly assumes that debt is constant over time.

(d) Net Working Capital does not impact cash-flows only if it is equal to zero.

(e) If Net Working Capital is negative, and a constant fraction of sales, it has a positive cash impact when the firm grows. 公司金融代考

#### (f) If capital expenditures are at the same level as depreciation, EBIT is a better proxy for operating cash-flows than EBITDA.

(g) If you use the average firm value/EBIT multiple in an industry to value one firm from that industry, you are implicitly assuming that all firms within the industry have the same leverage.

(h) If you use the average firm value/EBIT multiple in an industry to value one firm from that industry, you are implicitly assuming that all firms within the industry have the same growth rate.

(i) If firm A has a higher price-earning ratio than firm B, firm A’s stock has a higher total risk than firm B.

(j) If firm A has a higher price-earning ratio than firm B, firm A’s stock has a higher systematic risk than firm B.

#### 2. Firm F annual expected EBIT (=Operating Cash-flow) is $1,000,000. F’s unlevered cost of equity is 10%. F has a permanent debt with market value $3 million and its cost of debt is 3%. Compute F firm value using APV. Check that your result is correct using the FTE method. 公司金融代考

3. Firm F’s next year expected EBIT (=Operating Cash-flow) is $1,000,000. EBIT is growing at an annual rate of 2%. F’s unlevered cost of equity is 10%. F has a permanent debt with market value $3 million and its cost of debt is 3%. Compute F firm value using APV. Compute the WACC and use it to value F. Do you find the same result as with APV? Explain.

4. Firm F’s next year expected EBIT (end of year 1) is $1,000,000. EBIT is growing at an annual rate of 2%. F’s unlevered cost of equity is 10%, its debt market value is $3 million and its cost of debt is 3%. Annual Capex are equal to depreciation, net working capital was $5,000,000 last year (end of year 0), and is expected to be a constant multiple of EBIT. Compute F’s firm value using APV.

#### 5. Firm F’s annual expected EBIT (=Operating Cash-flow) is $1,000,000. F’s unlevered cost of equity is 10%, its debt market value is $3 million and its cost of debt is 3%. F has $2,500,000 worth of accumulated Net Operating Losses. Compute F’s firm value using APV.

6. Firm F’s annual expected EBIT (=Operating Cash-flow) is $1,000,000. F’s unlevered cost of equity is 10%, its debt market value is $3 million and its cost of debt is 3%. F’ debt is linearly amortized over three years1 . Compute F’s firm value using APV. Compute F’s WACC and use it to compute F’s firm value. Explain why the two methods yield different outcomes.

7. Suppose that F1 and F2 are “comparable” to F. F1 has a leverage of 1.3, a cost of debt of 3.5% and a systematic risk of equity β1 S = 1.1. F2 has a leverage of 0.2, risk-free debt and a systematic risk of equity β1 S = 0.7. The risk-free rate is 3% and the expected return of the market portfolio is 8%. Corporate tax rate is 30%. Give an estimate of the unlevered cost of equity of F.

### 2 Problem 公司金融代考

You have the following information:

– Expected EBIT: $8,000,000 (year 1), $6,000,000 (year 2), $7,000,000 (year 3) and $7,000,000 (year 4).

– Growth rate (EBIT) after year 4: 1%.

– D&A: $3,000,000 (year 1), $4,000,000 (year 2), $3,500,000 (year 3) and $3,000,000 (year 4).

– Capex: $4,000,000 (year 1), $3,000,000 (year 2), $3,000,000 (year 3) and $2,000,000 (year 4).

– After year 4, Capex are equal to depreciation.

– Net Working Capital is 20% of EBIT. It is equal to $1,800,000 at the end of year 0.

– Debt: perpetual bonds, market value $40,000,000.

– Accumulated Net Operating Losses: $10,000,000.

– Unlevered cost of equity r0 = 10%, cost of debt rB = 5%. 公司金融代考

– Corporate Tax Rate: TC = 30%.

Compute the value of F’s equity.