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    Sampa Video Case Solution

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    Rahul Sinha
    The document contains calculations to value an unlevered firm using different approaches: 1) The value of the unlevered firm using a discounted cash flow approach is $1,228 million. 2) The adjusted present value (APV) approach values the firm at $1,528 million by adding the tax benefit of borrowing to the unlevered firm value. 3) The weighted average cost of capital (WACC) approach uses the levered cost of equity and values the firm at $1,479 million, the highest of the three methods.

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    Sampa Video Case Solution

    Uploaded by

    Rahul Sinha
    141 views6 pages
    The document contains calculations to value an unlevered firm using different approaches: 1) The value of the unlevered firm using a discounted cash flow approach is $1,228 million. 2) The adjusted present value (APV) approach values the firm at $1,528 million by adding the tax benefit of borrowing to the unlevered firm value. 3) The weighted average cost of capital (WACC) approach uses the levered cost of equity and values the firm at $1,479 million, the highest of the three methods.

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    Business Valuation Case Sampa Video Solution

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    The document contains calculations to value an unlevered firm using different approaches: 1) The value of the unlevered firm using a discounted cash flow approach is $1,228 million. 2) The adjusted present value (APV) approach values the firm at $1,528 million by adding the tax benefit of borrowing to the unlevered firm value. 3) The weighted average cost of capital (WACC) approach uses the levered cost of equity and values the firm at $1,479 million, the highest of the three methods.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    141 views6 pages

    Sampa Video Case Solution

    Uploaded by

    Rahul Sinha
    The document contains calculations to value an unlevered firm using different approaches: 1) The value of the unlevered firm using a discounted cash flow approach is $1,228 million. 2) The adjusted present value (APV) approach values the firm at $1,528 million by adding the tax benefit of borrowing to the unlevered firm value. 3) The weighted average cost of capital (WACC) approach uses the levered cost of equity and values the firm at $1,479 million, the highest of the three methods.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 6

    Q1 Can be rephrased as "What is the value of unlevered firm?

    "

    Particulars 2002 2003 2004


    EBIAT -12 81 201
    "+D&A 200 225 250
    (Delta Capex) -300 -300 -300
    (Delta NWC) 0 0 0
    FCFF -112 6 151
    PVIF 0.864 0.746 0.644
    PVCF -97 4 97
    EV 2728
    NPV = EV - C0
    1228 //1500 coming from case text

    Q2 APV = Value of Unlevered Firm + Tax Benefit of borrowing - Bankruptcy cost


    Assumption: fixed amount of borrowing = 750000
    Tax benefit of borrowing = (Amount of borrowing * Pre-tax CoD * tax Rate) / Pre-tax CoD
    = $ 300,000.00
    Value of Levered firm under APV approach =
    NPV = APV - C0
    $ 1,528,000.00
    Bankruptcy cost is difficult to predict in real life. Hence most of the time it is considered to be 0. Theor

    Q3 Particulars 2002 2003 2004


    EBIAT -12 81 201
    "+D&A 200 225 250
    (Delta Capex) -300 -300 -300
    (Delta NWC) 0 0 0
    FCFF -112 6 151
    PVIF 0.869 0.754 0.655
    PVCF -97 5 99
    EV 2963
    NPV 1463 //1500 coming from case text

    Q4 Capital Cash Flow


    CCF = FCFF + Interest Tax Shield

    Under WACC approach, we consider the benefit of borrowing in the discount rate, whereas under t
    approach, we consider the benefit of borrowing in the cash flow. That means the doscount rate und
    approach is the unlevered CoE

    Particulars 2002 2003 2004


    EBIAT -12 81 201
    "+D&A 200 225 250
    (Delta Capex) -300 -300 -300
    (Delta NWC) 0 0 0
    FCFF -112 6 151
    FCFF + ITS ( == CCF) -91.8540117924 29.1956879024 178.5839421451
    PVIF 0.864 0.746 0.644
    PVCF -79 22 115
    EV 2979
    NPV 1479 //1500 from case text

    Highest value is obtained using APV approach due to difference in discount rate
    Banks go for using CCF approach
    2005 2006
    339 495
    275 300 Unlevered CoE = rf + Asset Beta*Risk Premium
    -300 -300 15.800%
    0 0
    314 5308 TV = 4813
    0.556 0.480
    175 2549

    coming from case text

    orrowing - Bankruptcy cost

    Pre-tax CoD * tax Rate) / Pre-tax CoD

    $ 3,028,000.00

    the time it is considered to be 0. Theoretically, it is around 20% of the firm value

    2005 2006
    339 495
    275 300 Asset Beta = Eq Beta * ( E/V) + Debt Beta * (D/V)
    -300 -300 1.5 =
    0 0 Eq. Beta =
    314 5621 CoE =
    0.569 0.494 Pre-tax CoD =
    179 2778 Post-tax CoD =
    WACC =
    coming from case text TV =

    g in the discount rate, whereas under the CCF


    flow. That means the doscount rate under CCF
    ered CoE

    2005 2006 Particulars 2002


    339 495 EV 2963
    275 300 Debt = 0.45 * EV 740.66
    -300 -300 Interest Expense (@6.8%) 50.36
    0 0 ITS ( Interest * 0.4) 20.15
    314 495
    345.712623003 5683 TV =
    0.556 0.480
    192 2729

    from case text

    in discount rate
    + Asset Beta*Risk Premium

    bt Beta * (D/V)
    Eq Beta * 0.75 + 0.25 * 0.25
    1.92
    18.82400%
    6.80%
    4.08%
    15.14%
    5126

    1 2 3 4
    2003 2004 2005 2006
    3411 4056 4664 5196
    852.78 1014.12 1165.91 1298.94
    57.99 68.96 79.28 88.33
    23.20 27.58 31.71 35.33

    5152.777778

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