Case 31 an Introduction to Debt Value

Case 31 Introduction to Debt policy and value | | | | | | 1 | | | | | 0% Dept | 25% Dept | 50% Dept | | 100% Equity | 75% Equity | 50% Equity | | | | | Book value of debt | 0.00 | 2,500.00 | 5,000.00 | Book value of equity | 10,000.00 | 7,500.00 | 5,000.00 | Market value of debt | 0.00 | 2,500.00 | 5,000.00 | Market value of equity | 10,000.00 | 8,350.00 | 6,700.00 | Pretax cost of debt | 5% | 5% | 5% | After-tax cost of debt | 3.3% | 3.3% | 3.3% | | | | | Market value weight of: | | | | Debt | 0.00 | 0.20 | 0.40 | Equity | 1.00 | 0.80 | 0.60 | Levered beta | 0.80 | 0.96 | 1.19 | Risk-free rate | 5% | 5% | 5% | Market premium | 6% | 6% | 6% | Cost of equity | 9.8% | 10.7% | 12.2% | WACC | 9.8% | 9.0% | 8.4% | EBIT | 1,485.00 | 1,485.00 | 1,485.00 | Taxes 34% | 504.90 | 504.90 | 504.90 | EBIAT | 980.10 | 980.10 | 980.10 | Depreciation | 500.00 | 500.00 | 500.00 | Capital expense | (500.00) | (500.00) | (500.00) | Change in net working capital | 0.00 | 0.00 | 0.00 | (Free cash flow)FCF | 980.10 | 980.10 | 980.10 | Value of Assets (FCF/WACC) | 10,001.02 | 10,851.11 | 11,701.19 | | | | | | | | | 2 | | | | | 0% Dept | 25% Dept | 50% Dept | | 100% Equity | 75% Equity | 50% Equity | | | | | Cash flow to creditors | | | | Interest | 0.00 | 125.00 | 250.00 | Pretax cost of debt | 5% | 5% | 5% | Value of debt | | | | (interest/Kd) | 0.00 | 2,500.00 | 5,000.00 | Cash flow to shareholders | | | | EBIT | 1,485.00 | 1,485.00 | 1,485.00 | Interest | 0.00 | (125.00) | (250.00) | Pretax profit | 1,485.00 | 1,360.00 | 1,235.00 | Taxes | 504.90 | 462.40 | 419.90 | Net income | 980.10 | 897.60 | 815.10 | Depreciation | 500.00 | 500.00 | 500.00 | Capital expense | (500.00) | (500.00) | (500.00) | Change in net working capital | 0.00 | 0.00 | 0.00 | Debt amortization | 0.00 |