Practice

A company's capital structure is $700M of Equity, $200M of Debt, and $100M of Preferred Stock (at market value). Its Cost of Equity is 10%, its pre-tax Cost of Debt is 6%, its Cost of Preferred is 8%, and its tax rate is 25%. Build its WACC.

A company projects $500M of Revenue with a 20% EBIT margin, a 25% tax rate, $25M of D&A, $35M of CapEx, and an $8M increase in Net Working Capital. Build its Unlevered FCF.

A single $100M cash flow arrives in Year 3 of a DCF with a 10% WACC. Calculate its Present Value using a standard (year-end) discount period, then again using the mid-year convention, and compare.

A company's final projected year of FCF is $80M and EBITDA is $150M. Its WACC is 9%, and you're assuming a 2.5% Terminal Growth Rate. Calculate the Terminal Value via the Perpetuity Growth Method, then cross-check it by calculating the implied exit multiple.

A company's Enterprise Value is $1,200M. It has $150M of Cash, $300M of Total Debt, $50M of Preferred Stock, $20M of Noncontrolling Interests, and 80M diluted shares. Bridge from Enterprise Value to Implied Share Price.

A company's NTM TEV/EBITDA multiple is 10.0x, and its projected EBITDA 12-24 months from now is $180M. At that future date it's expected to have $200M of Net Debt and 40M diluted shares. Its Cost of Equity is 9%, and that future point is 2 years away. Calculate the Implied Future Share Price and its Present Value today.

Comp A has a Levered Beta of 1.3, Debt/Equity of 0.5, and a 25% tax rate. Comp B has a Levered Beta of 1.1, Debt/Equity of 0.2, and the same 25% tax rate. Your target company has a Debt/Equity ratio of 0.4 and the same 25% tax rate. Unlever both comps, average them, and relever for the target.

A 10-year DCF values a company on August 31st, giving a stub-adjusted discount period of 9.334 for the final explicit forecast year. Calculate the Terminal Value discount period under both the Multiples Method and the Perpetuity Growth Method (with the mid-year convention), and explain why they differ.

A target company has $800M of Equity Value and $200M of Debt. The unlevered Beta from its comps is 0.85, its tax rate is 25%, the Risk-Free Rate is 4%, the Equity Risk Premium is 5.5%, and its pre-tax Cost of Debt is 6%. Build its WACC from scratch.

A company's explicit-period FCF is $60M in Year 1, $65M in Year 2, and $70M in Year 3. Its WACC is 10%, and its Terminal Value at the end of Year 3 is $900M. Calculate its Enterprise Value.