AES FAQ

Can I work in a group?

No, as discussed this is an individual assignment.
Is there any limit to the number of pages for the write up?
No reasonable limit, turn in what you feel is necessary to answer the questions completely.
Do we need to calculate all the WACCs for each project?
Yes, you should build a spread sheet to show you the range of discount rates implied by the new method
To get the value of the project, can we just take the FCFs as given, or do I need to adjust them for
anything (like taxes or initial investment).
You can use the FCFs as given. Note these are the unlevered cash flows. When you use the cost of capital
that includes a mix of debt and equity, to be consistent with it, the numerator has to be unlevered cash
flows (i.e., cash flow that is available for distribution to both debt and equity holders).
On Question 2 of the case, when we are trying to calculate the cost of capital for the Pakistan project, we
are supposed to find comparable betas of other companies doing a similar line of business, which we
would subsequently unlever to find a project specific beta. Do you know where I can find their betas?
See unlevered betas, which are synonymous to asset betas in Exhibit 7b.
In exhibit 12, the cash flows with TV (terminal value) and without it are exactly the same. How can that
be?
It is presumably because it is a project with a finite life, i.e., 20 years with the explicit forecasting period
of 20 years so there is nothing left in terminal value. In company valuations (as opposed to project
valuations), the cash flows with or with TV differ simply because companies are treated as going
concerns.
Should I try to recompute FCF when I do my valuation?
No, take the FCFs as given and discount by the WACC you compute from the new method. This case is
designed to get you to discuss the specific COC method by using the projected FCFs as given, rather than
spending a lot of time doing a perfect valuation. Also note while leverage changes thru time, you can
assume one WAAC for the life of the project with the given cash flows.
How much detail should I go into when analyzing changes in the cash flows?
Heres a suggestion: Just take the FCF as given, then play around with scenarios like (1) full
expropriation in X number of years or (2) 50% expropriation starting in year Y (3) etc. The Dow case had
a more detail that allowed more specifics, this time the above should allow you to get the jist of what is
going on.
What is the debt to capital in exhibit 7a?

That is the debt to value ratio.