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Financial Management FINC 5000 week 6-7

Financial Management FINC 5000 week 6-7. “Capital Structure” The Disney DEMO Shanghai 2014. 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.

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Financial Management FINC 5000 week 6-7

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  1. Financial Management FINC 5000week 6-7 “Capital Structure” The Disney DEMO Shanghai 2014 邦保罗

  2. The Finance Framework  

  3. Look at Disney

  4. The Process

  5. Source: Damodaran…

  6. In 1996:

  7. Start with actual performance

  8. Ks% at different debt ratio’s

  9. Beta and Ks% at different debt ratio’s

  10. Estimate cost of debt at each level of debt…

  11. From 10%-90%

  12. Like this…

  13. Beware of tax implications

  14. Debt % and Kd%

  15. So find minimum WACC%

  16. You found best Debt ratio around 40%

  17. Note on ratings…

  18. Cost of rating constraint:

  19. Different rating constraints

  20. Note: All Beta’s are levered.. • All beta’s we calculated are from companies with LT debt • They are so called Levered Beta’s • Only if a company has NO debt (Microsoft) the levered beta=unlevered beta • So we can calculate all companies beta’s assuming that LT debt is zero, 10%, 20% etc…. • You can imagine what happens if the debt ratio is 90% or more….

  21. Levered and unlevered Beta’s • How does the Debt ratio of a company effects the beta and Ks? • Through the “financial leverage” (D/E ratio) • We can calculate the effect on Beta from the Debt ratio… • The higher D/E the higher the beta for a company • Let’s take a look at the Hamada formula: ßeta

  22. Hamada and Disney • Levered Beta= Unlevered Beta*(1+(1-t%)*D/E) • Unlevered Beta= Levered Beta/(1+(1-t%)*D/E) My Beta ???

  23. Your assignment: • 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 FY2011-12 or any last relevant year…

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