Change in equity MV?
Change in market value. Say you have a 3yr project giving out ATCF of 8 mill each. The PV of these at 10% is 19,894,815. Then do the same but just two years (since one year passed) = 13,884,297. The change is 6,010,518.
Ok. So this is from CF? Not going to review this for probably a week.
Yea, find all the ATCF and PV them. ATCF = Operating Income * (1-t) + Depreciation.
Study Session 8 P35
Thanks!
Niblita75 Wrote: ------------------------------------------------------- > I just did an arbitrary numbers thing . . . they > give the same answer. > > Debt = 100 > Equity = 100 > Kd = 6% > Ke = 12% > WACC = 6(.7)(.5) + 12(.5) = 8.1% > > Sales = 1000 > COGS = 200 > EBIT = 800 > Int = 6 > EBT = 794 > Taxes = 238.2 > NI = 555.8 > > RI = 555.8 - (.12*100) = 543.8 > EVA = 800(.7) - 200(.081) = 543.8 I think this will happen only if we assume the cost of debt is same as the one used for calculating interest expense. This can happen if the debt is trading at close to par value.
Kabhii, Let me make sure I am following you. Since NI reflect actual interest expense for the period and the debt portion of WACC may not the two values could be different. Is that what you are saying?
Cost of debt = YTM of debt. Interest expense = coupon rate on the debt. And we already know that coupon rate and yield on debt may not be same.
Got it. Is the cost of debt in WACC always a current number? In other words, is the cost of debt the cost for newly issued debt or is it the average of all YTMs on outstanding debt?
mwvt9 Wrote: ------------------------------------------------------- > Got it. > > Is the cost of debt in WACC always a current > number? In other words, is the cost of debt the > cost for newly issued debt or is it the average of > all YTMs on outstanding debt? Ok for this one I am unsure. Some corp. fin guy will be able to explain it better. You can use the YTM on outstanding debt for cost of debt (schweser pg 118, book 4) but I don’t know if average has to be used.