homework

[andy chow]

John,
I was told by others (with confirmation from Prof) that we need to discount the 2 months from Dec to Oct.  Since we are doing the evaluation on Oct.
Also, I used the PV functions instead of the PV factor.  Is it ok? or PV factor is the standard way of doing the discounting?  Because I think my number is a bit different than yours.  Also I did that extra 2 months discounting.
At the end, I think you need to deduct the outstanding debt (1160M) to get the equity value.
Cheers,
Andy

[John Ng]

HI Andy,

 

If we need to discount 2 more month. then i think it will be ok but just using my instrinct value P1 and do a 2 more month discount say ,

ie P0= P1/ {1+ (2*WACC)/12}
 

John
 

[Aslan Lam]

I'm just wondering should we incorporate the tax effect in calculating the Weighted Cost of Debt [Cost of Capital x (1 - Marginal Tax Rate] as Andy does.  Otherwise (if we take no tax effect), the Present Value fo Free Cash Flow will be same as John's calculation.

 

Still studying why there are some differences in Andy's PV() function of Excel.

 

Cheers .....

 

Aslan

 

[andy chow]

Actually i think the difference is very small if you divide it back to a per share value.
However, I just wonder if we need to add the excess value of marketable security.  Please see my updated version.
Now i get a per share value of 22.96.
andy

[John Ng]

HI,

 

I have revised.. and get 21.11. And Andy is corrrect in the sense to use (1-Tc) for the cost of debt.

 

John.

[Philip Wan]

Same result as Andy's.

[L Shiu]

Dear all,

 

My answer is slightly different.  Coz my way of computing the terminal value is slightly different from Philip's.  The equation I used is

 

FCF at 2014/(WACC-growth rate)

 

In other words, I do not multiply FCF at 2014 further with the growth rate, coz that's not required inthe lecture notes.

 

Attached results for your reference, pls.

 

It' quite fun doing this gimmick thing.  But I wonder how people can - and on what basis - make all the assumptions in the case well into the next decade.  I'm sceptical.

 

 

LK

 

[L Shiu]

hi guys,

 

i made a mistake in some calculation (thanks john for pointin gout).

 

here's the correct version.

 

 

LK

[andy chow]

LK,
You need to multiply the growth rate because you need to get the CF for 2015 in order to calculate the value for 2014.  So the way is to times the growth rate from the 2014 cash flow.
Cheers,
Andy