mba corp finc 5880 “capital structure” “capital structure” session 1 the disney demo...
TRANSCRIPT
MBA CORP FINC 5880MBA CORP FINC 5880
““Capital Structure”Capital Structure”Session 1 The Disney DEMO Session 1 The Disney DEMO
Shanghai 2014Shanghai 2014
邦保罗邦保罗
The Finance Framework
Look at Disney
The Process
Source: Damodaran…
In 1996:
Start with actual performance
Ks% at different debt ratio’s
Beta and Ks% at different debt ratio’s
Estimate cost of debt at each level of debt…
From 10%-90%
Like this…
Beware of tax implications
Debt % and Kd%
So find minimum WACC%
You found best Debt ratio around 40%
Note on ratings…
Cost of rating constraint:
Different rating constraints
Note: All Beta’s are levered..
• All beta’s we calculated are from All beta’s we calculated are from companies with LT debtcompanies with LT debt
• They are so called Levered They are so called Levered Beta’sBeta’s
• Only if a company has NO debt Only if a company has NO debt (Microsoft) the levered (Microsoft) the levered beta=unlevered betabeta=unlevered beta
• So we can calculate all So we can calculate all companies beta’s assuming that companies beta’s assuming that LT debt is zero, 10%, 20% etc….LT debt is zero, 10%, 20% etc….
• You can imagine what happens if You can imagine what happens if the debt ratio is 90% or more….the debt ratio is 90% or more….
Levered and unlevered Beta’s
• How does the Debt ratio of a How does the Debt ratio of a company effects the beta and company effects the beta and Ks?Ks?
• Through the “financial leverage” Through the “financial leverage” (D/E ratio)(D/E ratio)
• We can calculate the effect on We can calculate the effect on Beta from the Debt ratio…Beta from the Debt ratio…
• The higher D/E the higher the The higher D/E the higher the beta for a companybeta for a company
• Let’s take a look at the Hamada Let’s take a look at the Hamada formula:formula:
ßetaßeta
Hamada and Disney
• Levered Beta= Unlevered Beta*(1+(1-t%)*D/E)Levered Beta= Unlevered Beta*(1+(1-t%)*D/E)
• Unlevered Beta= Levered Beta/(1+(1-t%)*D/E)Unlevered Beta= Levered Beta/(1+(1-t%)*D/E)
My Beta ???
Homework Assignment 1:
• Consider your company’s WACC
• Follow the attached searching process
• Do this for your company
• Put all in an Excel spread sheet
• Make the output look exactly like in attached PPT for your company
• Use FY2013 or any last relevant year…