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9.7) How are the following valuation parameters re...




9.7) How are the following valuation parameters related to each other? How do they affect the general free cash flow valuation model? Revenues- Investment- Net operating income- Profitability rate- Growth rate- 9.8 The Alcindor Company is similar to and is the same industry as the Walton Company. Both Alcindor Company and Walton Company have a cost of equity of 12%, cost of debt of 8%, and 30% debt. If Walton has revenues(R) of $1000, operating margin (m) of 15%, a tax rate (T) of 40%, investment rate (I) of 8%, growth rate (g) of 18%, and 5 years of supernormal growth (n) and zero growth thereafter, what value would Alcindor Company be willing to pay for Walton Company? 3) Suppose Alcindor Company is instead interested in the Elway Company, a firm in a completely unrelated (and riskier) industry. Elway Company has the same parameters as Walton Company (question 9.8), except Elway has a cost of equity of 15%, cost of debt of 10%, and 20% debt. What value should Alcindor Company be willing to pay for Elway Company? 4) Table P10.2.1 used model 10-04 to calculate the premerger stand-alone values of Dow and Union Carbide has a higher net operating margin and a higher-growth rate. Because of its higher credit rating it had a somewhat lower cost of capital. Analysts' reports predicted that the combined operating margin would reflect the benefits of synergies in the total amount of $2 billion. They also predicted that the combined growth rate would raise Union Carbide's growth rate toward the higher of Dow. In the combined column (Dow, the surviving company), of table 10.2.1, are blanks for the operating income margins and growth rate for the initial period and the terminal period. Make your best estimate to fill in the blanks to calculate the values for the third column of the table.


Paper#8719 | Written in 18-Jul-2015

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