Docstoc

Leland

Document Sample
Leland Powered By Docstoc
					                           e677149d-4d7a-4c61-9750-ee98ea137fb4.xls                   Page 1/1

      Advanced Finance
      Professor André Farber
      CAPM - Structural model and the CAPM
      Revised April 2007
      Data
             Value of unlevered firm       250
                           Volatility   20.00%
                         Beta asset       1.20
                             Coupon      10.00
                      Risk free rate    4.00%
                  Mkt risk premium      5.00%
                    Bankruptcy cost       60%
                 Corporate tax rate       35%


(1)   Level of bankruptcy VB            108.33 =(1-Tc)*coupon/(rf+0.5*Sigma*Sigma)
      x                                   2.00 =2*rf/Sigma^2
      PV of €1 if bankruptcy pB          0.188 =(VB/VU)^(2*rf/Sigma^2)

(2)   Market value of the debt           211.19 =(coupon/rf)*(1-pB)+(1-alfa)*VB*pB
      Yield on debt                      4.74% =coupon/D
      Yield spread (bp)                     74 bp



(3)   Value of tax shield VTS              71.1 =Tc*coupon/rf*(1-pB)
      Value of bakruptcy costs            12.2 =pB*alfa*VB
      Value of levered firm              308.9 =VU+VTS-VBC

(4)   Market value of equity              97.7 =V-D

(5)   Cost of capital unlevered         10.00% =rf+RiskPremium*BetaAsset

(6)   dpB/dVU                           -0.002    =-X*pB/VU
      dD/dVU                               0.31   =(-coupon/rf+(1-alfa)*VB)*pBprime
      Beta Debt                          0.441    =C30*VU/D*BetaAsset
      Expected return                    6.21%    =rf+RiskPremium*BetaDebt

(7)   dE/dVU                              0.919 =1+((1-Tc)*coupon/rf-VB)*pBprime
      Beta equity                         2.822 =BetaAsset*DeltaEquity*VU/E
                                         18.11% =rf+RiskPremium*BetaEquity

(8)   WACC                               8.48%
      WACC < rA since V>VU




                                                                                      9/5/2011

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:2
posted:9/5/2011
language:English
pages:1