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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

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Valuation Of Company

  • 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