1. How to value a company that has initial super normal
growth rate then its growth rate levels off.
All the following numbers are assumptions for a imaginary company called XYZ Inc.
Company: XYZ Inc.
Capital Structure:
Senior Debt($mil) 25
Subord. Debt($mil) 15
Total Debt($mil) 40
Com.Stock.Outst.(mil) 60
Par Value of Stock($) 1 Enterprise Value ($mil) 11.34
Weight of Debt(%) 40 Total Debt ($mil) 40
Weight of Equity(%) 60 Eqity Value ($mil) -28.66
Total Weight(%) 100 Vaule per share($) -0.48
Cost of Debt(%) 10.88%
US Risk Free Rate(assumption)(%) 5 If I invest in this company
Beta 1.9 it will be flushing cash down the toilet.
Market Risk Premium(%) 8
Cost of Equity 20.20
Tax Rate(%) 35
WACC(%) 14.95
Terminal Value($) 15.98
PV of Terminal Value($mil) 6.03
PV of Cash Flows($mil) 5.31
Financial Year 2009 Growth(%) FCFF(Mill$)
2010 6 1
2011 7 1.07
2012 10 1.18
2013 10 1.29
2014 11 1.44
2015 12 1.61
2016 15 1.85
2017 and onwards 3 1.91