X

Download Firm Valuation PowerPoint Presentation

SlidesFinder-Advertising-Design.jpg

Login   OR  Register
X


Iframe embed code :



Presentation url :

X

Description :

Firm valuation powerpoint presentation for free download.

Tags :

firm | valuation | firm valuation | cash flows | account | firm value

Home / Education & Training / Education & Training Presentations / Firm Valuation PowerPoint Presentation

Firm Valuation PowerPoint Presentation

Ppt Presentation Embed Code   Zoom Ppt Presentation

PowerPoint is the world's most popular presentation software which can let you create professional Firm Valuation powerpoint presentation easily and in no time. This helps you give your presentation on Firm Valuation in a conference, a school lecture, a business proposal, in a webinar and business and professional representations.

The uploader spent his/her valuable time to create this Firm Valuation powerpoint presentation slides, to share his/her useful content with the world. This ppt presentation uploaded by neerajmba in Education & Training ppt presentation category is available for free download,and can be used according to your industries like finance, marketing, education, health and many more.

About This Presentation

Firm Valuation Presentation Transcript

Slide 1 - FIRM VALUATION
Slide 2 - Firm Valuation Assumptions: Corporate taxes - individual taxe rate is zero Capital markets are frictionless Individuals can borrow and lend at the risk-free rate There are no costs to bankruptcy
Slide 3 - Firms issue only two types of claims: risk-free debt & (risky) equity All firms are in the same risk class No other taxes than corporate taxes All cash flow streams are perpetuities Everybody has the same information No agency costs
Slide 4 - The value of an unlevered firm is ,where = Expected future cash flow r = Discount rate for an all - equity firm of equivalent risk = Corporate tax rate
Slide 5 - If the firm issues debt, then ,where = The amount paid to the lenders, kd = interest rate, D = amount of debt =interest on debt. If the debt is risk-free then .
Slide 6 - If then In other words = Value of an unlevered firm + the PV of the tax shield provided by debt. Notice that if then (The famous Modigliani-Miller hypothesis)
Slide 7 - This implies that “The market value of any firm is independent of its capital structure and is given by capitalizing its expected return at the rate r appropriate to its risk class” (Modigliani-Miller, American Economic Review, 1958 june)
Slide 8 - When the firm makes an investment I, its value will change according to (source)
Slide 9 - The above investment will affect the value of the levered firm: Note that Equity = old + ds0+dsn Because the project has the same risk as those already outstanding, the value of the outstanding debt stays the same .
Slide 10 - Because new project is financed with new debt, equity or both Inserting D I into the above formula (),
Slide 11 - This means that the project has to increase the shareholders’ wealth, so that and
Slide 12 - The Weighted Average Cost of Capital Recall the formula as shown it should be greater than 1, so
Slide 13 - This results in what is called “the Weighted Average Cost of Capital”, WACC, source. If there are no taxes the cost of capital is independent of capital structure.
Slide 14 - What does mean ? “If denotes the firm’s long run target debt ratio ...then the firm can assume, that for any particular investment “ .
Slide 15 - An alternative definition of the weighted average cost of capital Definition by Haley and Shall [1973] Target leverage ratio Reproduction value Reproduction value = PV of the stream of goods and services expected from the project.
Slide 16 - How to calculate the cost of the two components in WACC (debt & equity) Assumptions: The cost of debt = The cost of equity capital is the return on
Slide 17 - This can be written as (C-W, p. 449): Since the total change in equity is , the cost of equity can be written as
Slide 18 - If the firm has no debt in its capital structure, then It can be shown that (C-W, 451) WACC can be written as: tax shield Percentage of equity in the capital structure cost of equity Percentage of debt in the capital structure cost of debt
Slide 19 - This formula is the same as the Modigliani-Miller definition The M-M and the traditional definition are identical !