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PRELIMINARYSTUFFANDINPUTS

Objective

Beforeyoustart

Inputs

Units
Incomeinputs

BalanceSheet

MarketData

TaxRate
DefaultSpreads

READINGTHEOUTPUT
Summary

Details

References
CorporateFinance:TheoryandPractice,Chapter18
AppliedCorporateFinance:Chapter8
PRELIMINARYSTUFFANDINPUTS
Thisspreadsheetallowsyoutocomputetheoptimalcapitalstructureforanonfinancial
servicefirm
Openpreferencesinexcel,gointocalculationoptionsandputacheckintheiterationbox.
Ifitisalreadychecked,leaveitasis.
Theinputsareprimarilyintheinputsheet.Ifyourcompanyhasoperatingleases,
usetheoperatingleaseworksheettoenteryourleaseorrentalcommitments.
Enterallnumbersinthesameunits(000s,millionsorevenbillions)
Thekeyincomeinputistheearningsbeforelongterminterestexpensesanddepreciation.
Enterthemostupdatednumbersyouhaveforeach(eveniftheyare12monthtrailing
numbers).Ifthemostrecentperiodforwhichyouhavedatahasanoperatingincomethat
isabnormal,eitherbecauseofextraordinarylosses/gainsorsomeotheroccurrence,use
anaverageoperatingincomeoverthelastfewyears.
Enterthebookvalueoftotaldebt.Ifyouhaveamarketvalueenterthat
number.Alternatively,inputtheaveragematurityofthedebtandIwillestimatethe
marketvalueofdebt.
Enterthecurrentstockprice,thecurrentriskfreerate,theequityrisk
premiumyouwouldliketousetoestimateyourcostofequityandthecurrentratingfor
yourfirm.Ifyoudonothavearating,thereisanoptionforyouattheverybottomof
thespreadsheettocomputeasyntheticrating.
Enteramarginaltaxrate,ifyoucanfindit.Otherwise,usethemarginaltaxrateofcountry
Thisspreadsheethasinterestcoverageratios,ratingsanddefaultspreadsbuiltintoitin
theworksheet.Youcanchoosebetweentwotables,oneforlargeandstable
firms,andtheotherforsmallorriskyfirms.Ifyouwantyoucanchangetheinterest
coverageratiosandratingsinthesetables.
READINGTHEOUTPUT
Thesummaryprovidesapictureofyourfirm'scurrentcostofcapitalanddebtratio,and
comparesittoyourfirm'soptimaldebtratioandthecostofcapitalatthatlevel.The
firmvalueiscomputedateachdebtratio,baseduponhowtheexpectedoperatingincome
andthecostofcapital.Theoptimaldebtratioisthatratioatwhichfirmvalueis
maximized.Itmightnotbethesamepointatwhichcostofcapitalisminimized.
Thedetailsofthecalculationateachdebtratioarebelowthesummary.

actice,Chapter18
Question
Q1: What do I do excel says there are circular references?

Q2: My spreadsheet has gone crazy. I get errors all over.


What did I do wrong?

Q3: I am entering the inputs for my company but the


optimal numbers do not seem to change from the
originals.

Q4: I am getting an optimal debt ratio of 0%. This can't be


right. Can it?

Q5: My cost of capital at my optimal debt ratio is higher


than the current cost of capital. I thought it was supposed
to be lower.

Q6: I am getting an optimal debt ratio at a mix where my cos


of capital is not minimized? Is something wrong?
Answer
Go into preferences, choose calculation options and make sure the iteration box has a check in it.
I am sorry to say this, but you probably just made an input error. While you might have fixed it,
the iterations in the spreadsheet make it very sensitive and the errors will not go away. The only
fix (Sorry, sorry) is to copy the inputs into a fresh version of the spreadsheet.

You probably forgot to check the iteration box (see Q1)

Sure. If your operating income is either negative or very low, relative to your firm value,
you can end up at an optimal debt ratio of 0%. For instance, if you have EBIT of 100 on a
firm value of 10000, a 10% debt ratio would probably push you into a C rating and give
you a very high cost of capital.
Generally, you are right. However, I would suggest that you look at three factors:
- If your optimal is just slightly higher or lower than your current debt ratio, it is possible that you
are closer to the optimal than the stated optimal. Let me explain. Assume that you are at a 24% debt ratio
and the optimal comes out to 30%. The true optimal is really somewhere around 30% since
I am constrained to work in 10% increments of the debt ratio. If the true optimal were
26%, your current debt ratio of 24% is closer to the optimal.
- Rating Differences: One of the costs of rating a company based only on the interest
coverage ratio is that the rating might be very different from the actual rating. Thus, your
current cost of capital is based upon your current rating, and the optimal is based upon
the synthetic ratings, and the two don't match, the current and the optimal cost of capital
can be mismatched. You can get around this by switching to a synthetic rating for computing
the current cost of capital (in the input sheet).
- Existing debt at low rates: I assume in the spreadsheet that existing debt gets refinanced at
the new pre-tax cost of debt at each debt ratio. Consequently, if you have a lot of old debt on
your books at much lower rates, the interest expense that I report will be much higher than
your actual interest expense. This, in turn, can affect your interest coverage ratio and rating.
This, too, you can fix by locking in debt at current rates in the input sheet.
Not necessarily. If you chose to build in indirect bankruptcy costs (an option on the input page),
your operating income also changes as your debt ratio changes. Since the objective ultimately is to
maximize firm value, it is possible that the net effect (lower cost of capital is good but it could be offset
by lower operating income) is resulting in an optimal at a higher debt ratio.
Inputs
Please enter the name of the company you are analyzing: Disney

Please enter the date that you are doing this analysis Nov-13

Financial Information

Earnings before interest expenses, depreciation & amortization (EBITDA) $11,642.00

Depreciation and Amortization: $2,192.00

Capital Spending: $5,239.00


Interest expense on debt: $349.00

Marginal tax rate to use for pre-tax cost of debt 36.10%

Current Bond Rating on debt (if available): A2/A


Enter the current pre-tax cost of debt for your company 3.75%

Market Information & information on debt

Number of shares outstanding: 1800


Market price per share: $67.71

Beta of the stock: 1.0013

Cash and marketable securities = $3,931.00

Book value of debt: $ 14,288.00

Can you estimate the market value of the interest bearing debt? No

If so, enter the market value of "interest bearing" debt:


Do you want me to try and estimate market value of debt? Yes

If yes, enter the weighted average maturity of outstanding debt? 7.92

Do you have any operating leases? Yes

Indirect bankruptcy costs & ratings constraints (if any)

Do you want to incorporate indirect bankruptcy costs into your optimal? No

If yes, specify the magnitude of your indirect bankruptcy costs Medium

General Market Data


Current riskfree rate in the currency of analysis = 2.12%

Risk premium (for use in the CAPM) 5.76%

Country Default spread (for cost of debt) 0.00%

General Data
Which spread/ratio table would you like to use for your anlaysis? 1

Do you want to assume that existing debt is refinanced at the 'new' rate? Yes
Do you want the firm's current rating & cost of debt to be adjusted to the synthetic ra Yes
OutputSummary
Current Optimal
Debt to Capital 11.66% 50.00%
Cost of capital 7.18% 6.50%
Enterprise value $134,036 $155,052
Value per share $67.71 $79.39
Fordetails,check"OptimalCapitalStructure"worksheet

(YesorNo)
(YesorNo)
Country Tax Rate
Afghanistan 20.00%
Albania 10.00%
Angola 35.00%
Argentina 35.00%
Armenia 20.00%
Aruba 28.00%
Australia 30.00%
Austria 25.00%
Bahamas 0.00%
Bahrain 0.00%
Bangladesh 27.50%
Barbados 25.00%
Belarus 18.00%
Belgium 33.99%
Bermuda 0.00%
Bolivia 25.00%
Bonaire 0.00%
Bosnia and He 10.00%
Botswana 22.00%
Brazil 34.00%
Bulgaria 10.00%
Cambodia 20.00%
Canada 26.00%
Cayman Islan 0.00%
Chile 18.50%
China 25.00%
Colombia 33.00%
Costa Rica 30.00%
Croatia 20.00%
Curacao 27.50%
Cyprus 10.00%
Czech Republi 19.00%
Denmark 25.00%
Dominican Rep 29.00%
Ecuador 23.00%
Egypt 25.00%
Estonia 21.00%
El Salvador 30.00%
Fiji 28.00%
Finland 24.50%
France 33.33%
Georgia 0.00%
Germany 29.48%
Gibraltar 10.00%
Greece 20.00%
Guatemala 31.00%
Guernsey 0.00%
Honduras 35.00%
Hong Kong 16.50%
Hungary 19.00%
Iceland 20.00%
India 32.45%
Indonesia 25.00%
Ireland 12.50%
Isle of Man 0.00%
Israel 25.00%
Italy 31.40%
Jamaica 33.33%
Japan 38.01%
Jersey 0.00%
Jordan 14.00%
Kazakhstan 20.00%
Kenya 30.00%
Korea, Republi 24.20%
Kuwait 15.00%
Latvia 15.00%
Libya 20.00%
Liechtenstein 12.50%
Lithuania 15.00%
Luxembourg 28.80%
Macau 12.00%
Macedonia 10.00%
Malawi 30.00%
Malaysia 25.00%
Malta 35.00%
Mauritius 15.00%
Mexico 30.00%
Montenegro 9.00%
Mozambique 32.00%
Namibia 34.00%
Netherlands 25.00%
New Zealand 28.00%
Nigeria 30.00%
Norway 28.00%
Oman 12.00%
Pakistan 35.00%
Panama 25.00%
Papua New Gu 30.00%
Paraguay 10.00%
Peru 30.00%
Philippines 30.00%
Poland 19.00%
Portugal 25.00%
Qatar 10.00%
Romania 16.00%
Russia 20.00%
Saba 0.00%
Samoa 27.00%
Saudi Arabia 20.00%
Serbia 10.00%
Singapore 17.00%
Slovak Republ 19.00%
Slovenia 18.00%
South Africa 34.55%
Spain 30.00%
Sri Lanka 28.00%
St Eustatius 0.00%
St Maarten 34.50%
Sudan 35.00%
Sweden 26.30%
Switzerland 21.17%
Syria 28.00%
Taiwan 17.00%
Tanzania 30.00%
Thailand 23.00%
Trinidad and 25.00%
Tunisia 30.00%
Turkey 20.00%
Uganda 30.00%
Ukraine 21.00%
United Arab E 55.00%
United Kingd 24.00%
United States 40.00%
Uruguay 25.00%
Vanuatu 0.00%
Venezuela 34.00%
Vietnam 25.00%
Yemen 20.00%
Zambia 35.00%
Zimbabwe 25.75%
Africa averag 29.02%
North Americ 33.00%
Asia average 22.89%
Europe avera 20.50%
Latin America 28.30%
Oceania aver 28.60%
EU average 22.60%
OECD averag 25.25%
Global averag 24.43%
OperatingLeaseConverter
Operatingleaseexpensesarereallyfinancialexpenses,andshouldbetreatedassuch.Accountingstandardsallowth
betreatedasoperatingexpenses.Thisprogramwillconvertcommitmentstomakeoperatingleasesintodebtand
adjusttheoperatingincomeaccordingly,byaddingbacktheimputedinterestexpenseonthisdebt.

Inputs
Operatingleaseexpenseincurrentyear= $875.00
OperatingLeaseCommitments(Fromfootnotetofinancials)
Year Commitment !Year1isnextyear,.
1 $507.00
2 $422.00
3 $342.00
4 $272.00
5 $217.00
6andbeyond $1,784.00

PretaxCostofDebt= 2.87% !Ifyoudonothaveacostofdebt,usetheattachedratingsestimator

Fromthecurrentfinancialstatements,enterthefollowing
ReportedOperatingIncome(EBIT)= $9,450.00 !ThisistheEBITreportedinthecurrentincomestatement
ReportedInterestExpenses= $349.00
Output
Numberofyearsembeddedinyr6estimate= 5 !Iusetheaverageleaseexpenseoverthefirstfiveyears
toestimatethenumberofyearsofexpensesinyr6
ConvertingOperatingLeasesintodebt
Year Commitment PresentValue
1 $507.00 $492.86
2 $422.00 $398.78
3 $342.00 $314.17
4 $272.00 $242.89
5 $217.00 $188.37
6andbeyond $356.80 $1,423.75 !Commitmentbeyondyear6convertedintoanannuityfortenyears
DebtValueofleases= $3,060.81

RestatedFinancials
OperatingIncomewithOperatingleasesreclassifiedasdebt= $10,018.92
InterestexpenseswithOperatingleasesclassifiedasdebt= $436.85
Depreciationwithoperatingleasesclassifiedasdebt= $ 2,498.08
verter
ountingstandardsallowthemto
ngleasesintodebtand

entincomestatement

thefirstfiveyears
Inputsforsyntheticratingestimation
Enterthetypeoffirm= 1 (Enter1iflargefinancialservicefirm,2ifsmallerfinancialservicefirm)
Earningsbeforeinterestandtaxes(EBIT)= $10,018.92 (Addbackonlylongterminterest
Currentinterestexpenses= $436.85 (Useonlylongterminterestexpen
Currentlongtermgovernmentbondrate= 2.12%
Output
Interestcoverageratio= 22.93
EstimatedBondRating= Aaa/AAA
EstimatedDefaultSpread= 0.75%
EstimatedCostofDebt= 2.87%

Forlargemanufacturingfirms
Ifinterestcoverageratiois
> to Ratingis Spreadis DropinEBITDA
100000 0.199999 D2/D 20.00% 0.00%
0.2 0.649999 C2/C 16.00% 0.00%
0.65 0.799999 Ca2/CC 12.00% 0.00%
0.8 1.249999 Caa/CCC 9.00% 0.00%
1.25 1.499999 B3/B- 7.50% 0.00%
1.5 1.749999 B2/B 6.50% 0.00%
1.75 1.999999 B1/B+ 5.50% 0.00%
2 2.2499999 Ba2/BB 4.25% 0.00%
2.25 2.49999 Ba1/BB+ 3.25% 0.00%
2.5 2.999999 Baa2/BBB 2.25% 0.00%
3 4.249999 A3/A- 1.75% 0.00%
4.25 5.499999 A2/A 1.25% 0.00%
5.5 6.499999 A1/A+ 1.10% 0.00%
6.5 8.499999 Aa2/AA 1.00% 0.00%
8.50 100000 Aaa/AAA 0.75% 0.00%

Forsmallerandriskierfirms
Ifinterestcoverageratiois
greaterthan to Ratingis Spreadis DropinEBITDA
100000 0.499999 D2/D 20.00% 0.00%
0.5 0.799999 C2/C 16.00% 0.00%
0.8 1.249999 Ca2/CC 12.00% 0.00%
1.25 1.499999 Caa/CCC 9.00% 0.00%
1.5 1.999999 B3/B- 7.50% 0.00%
2 2.499999 B2/B 6.50% 0.00%
2.5 2.999999 B1/B+ 5.50% 0.00%
3 3.499999 Ba2/BB 4.25% 0.00%
3.5 3.9999999 Ba1/BB+ 3.25% 0.00%
4 4.499999 Baa2/BBB 2.25% 0.00%
4.5 5.999999 A3/A- 1.75% 0.00%
6 7.499999 A2/A 1.25% 0.00%
7.5 9.499999 A1/A+ 1.10% 0.00%
9.5 12.499999 Aa2/AA 1.00% 0.00%
12.5 100000 Aaa/AAA 0.75% 0.00%
cialservicefirm)
ddbackonlylongterminterestexpenseforfinancialfirms)
eonlylongterminterestexpenseforfinancialfirms)
CAPITALSTRUCTURE 17

Disney
November1,2013 Driversoftheoptimaldebtr
CapitalStructure FinancialMarket IncomeStatement Marginaltaxrate=
CurrentMVofEquity= $121,878 CurrentBetaforStock= 1.00 CurrentEBITDA= $12,517 EBITDA/Enterprisevalue=
MarketValueofinterestbearingd $13,028 CurrentBondRating= A2/A CurrentDepreciation= $2,498 EBIT/Enterprisevalue=
#ofSharesOutstanding= 1800 SummaryofInputs CurrentTaxRate= 36.10% Unleveredbeta=
DebtValueofOperatingleases= $3,061 LongTermGovernmentBond 2.12% CurrentCapitalSpending= $5,239
EquityRiskPremium= 5.76% Pretaxcostofdebt= 3.75% CurrentInterestExpense= $437

RESULTSFROMANALYSIS
Current Optimal Change
D/(D+E)Ratio= 11.66% 50.00% 38.34%
ImpliedGrowthRateCalculation
BetafortheStock= 1.001263852 1.51 0.51 Enterprisevalue= $134,036
CostofEquity= 7.89% 10.84% 2.95% CurrentWACC= 7.18%
RatingonDebt A2/A CurrentFCFF= $3,661.17 !Iamignoringworkingcapital
AftertaxcostofDebt= 1.83% 2.15% 0.32% ImpliedGrowthRate 4.33%
Ifthisnumberis>yourriskfreerate,Iusetheriskfreerateasaperpetualgro
WACC 7.18% 6.50% 0.69%
ImpliedGrowthRate= 2.12%
Assumesperpeutalgrowth Enterprisevalue $134,036 $155,052 $21,017
Value/share(PerpetualGrowth $67.71 $79.39 $11.68

Weusethefollowingdefaultspreadsinouranalysis.Changethemintheinputsheetifnecessary: Ratingscomparisonatcurrentdebtratio
Rating Coveragegt andlt Spread DropinEBITDACurrentInterestcoverageratio= 22.93
AAA 8.5 100000 0.75% 0.00% Ratingbaseduponcoverage= Aaa/AAA
AA 6.5 8.499999 1.00% 0.00% Interestratebaseduponcoverage= 2.87%
A+ 5.5 6.499999 1.10% 0.00% Currentratingforcompany= A2/A
A 4.25 5.499999 1.25% 0.00% Currentinterestrateondebt= 3.75%
A 3 4.249999 1.75% 0.00% Dropinoperatingincomebasedoncurrentrating 0.00%
BBB 2.5 2.999999 2.25% 0.00%
BB 2 2.2499999 4.25% 0.00%
B+ 1.75 1.999999 5.50% 0.00%
B 1.5 1.749999 6.50% 0.00%
B 1.25 1.499999 7.50% 0.00%
CCC 0.8 1.249999 9.00% 0.00%
CAPITALSTRUCTURE 18

CC 0.65 0.799999 12.00% 0.00%


C 0.2 0.649999 16.00% 0.00%
D 100000 0.199999 20.00% 0.00%
CAPITALSTRUCTURE 19

Currentbeta= 1.00 CurrentEquity= $121,878 CurrentDepreciation= $2,498


CurrentDebt= $16,089 CurrentEBITDA= $12,517 CurrentInterestrate(Company)= 2.87%
Taxrate= 36.10% CurrentRating= A2/A CurrentT.Bondrate= 2.12%
Enterprisevalue= $134,036 AdjustedEBITDA= $12,517
WORKSHEETFORESTIMATINGRATINGS/INTERESTRATES
D/(D+E) 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00%
D/E 0.00% 11.11% 25.00% 42.86% 66.67% 100.00% 150.00% 233.33% 400.00% 900.00%
$Debt $0 $13,797 $27,593 $41,390 $55,187 $68,983 $82,780 $96,577 $110,373 $124,170
Beta 0.9234 0.99 1.07 1.18 1.32 1.51 1.81 2.35 3.53 7.90
CostofEquity 7.44% 7.82% 8.29% 8.90% 9.71% 10.84% 12.54% 15.67% 22.45% 47.62%
%DropinEBITD 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
EBITDA $12,517 $12,517 $12,517 $12,517 $12,517 $12,517 $12,517 $12,517 $12,517 $12,517
Depreciation $2,498 $2,498 $2,498 $2,498 $2,498 $2,498 $2,498 $2,498 $2,498 $2,498
EBIT $10,019 $10,019 $10,019 $10,019 $10,019 $10,019 $10,019 $10,019 $10,019 $10,019
Interest $0 $396 $792 $1,291 $1,777 $2,325 $7,963 $10,739 $12,274 $22,500
TaxableIncome $10,019 $9,623 $9,227 $8,728 $8,242 $7,694 $2,055 ($720) ($2,255) ($12,481)
Tax $3,617 $3,474 $3,331 $3,151 $2,975 $2,778 $742 ($260) ($814) ($4,506)
NetIncome $6,402 $6,149 $5,896 $5,577 $5,267 $4,917 $1,313 ($460) ($1,441) ($7,975)
(+)Deprec'n $2,498 $2,498 $2,498 $2,498 $2,498 $2,498 $2,498 $2,498 $2,498 $2,498
FundsfromOp. $8,900 $8,647 $8,394 $8,075 $7,765 $7,415 $3,812 $2,038 $1,057 ($5,477)

PretaxInt.cov 25.30 12.65 7.76 5.64 4.31 1.26 0.93 0.82 0.45
Funds/Debt 0.63 0.30 0.20 0.14 0.11 0.05 0.02 0.01 0.04
LikelyRating Aaa/AAA Aaa/AAA Aaa/AAA Aa2/AA A1/A+ A2/A B3/B Caa/CCC Caa/CCC C2/C
Pretaxcostofdeb 2.87% 2.87% 2.87% 3.12% 3.22% 3.37% 9.62% 11.12% 11.12% 18.12%
Taxrate 36.10% 36.10% 36.10% 36.10% 36.10% 36.10% 36.10% 33.68% 29.47% 16.08%
COSTOFCAPITALCALCULATIONS
D/(D+E) 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00%
D/E 0.00% 11.11% 25.00% 42.86% 66.67% 100.00% 150.00% 233.33% 400.00% 900.00%
$Debt $0 $13,797 $27,593 $41,390 $55,187 $68,983 $82,780 $96,577 $110,373 $124,170
Costofequity 7.44% 7.82% 8.29% 8.90% 9.71% 10.84% 12.54% 15.67% 22.45% 47.62%
Costofdebt 1.83% 1.83% 1.83% 1.99% 2.06% 2.15% 6.15% 7.37% 7.84% 15.21%
CostofCapital 7.44% 7.22% 7.00% 6.83% 6.65% 6.50% 8.70% 9.86% 10.76% 18.45%
0 0 0 0 0 1 0 0 0 0
Value(perpetualg $127,553 $133,072 $139,091 $144,196 $149,902 $155,052 $103,066 $87,624 $78,501 $41,558
CAPITALSTRUCTURE 20

Interestcov Interestcov RATING Interestrate Dropin


CAPITALSTRUCTURE 21

Low High EBITDA


100000 0.199999 D2/D 22.12% 0.00%
0.2 0.649999 C2/C 18.12% 0.00%
0.65 0.799999 Ca2/CC 14.12% 0.00%
0.8 1.249999 Caa/CCC 11.12% 0.00%
1.25 1.499999 B3/B 9.62% 0.00%
1.5 1.749999 B2/B 8.62% 0.00%
1.75 1.999999 B1/B+ 7.62% 0.00%
2 2.2499999 Ba2/BB 6.37% 0.00%
2.25 2.49999 Ba1/BB+ 5.37% 0.00%
2.5 2.999999 Baa2/BBB 4.37% 0.00%
3 4.249999 A3/A 3.87% 0.00%
4.25 5.499999 A2/A 3.37% 0.00%
5.5 6.499999 A1/A+ 3.22% 0.00%
6.5 8.499999 Aa2/AA 3.12% 0.00%
8.5 100000 Aaa/AAA 2.87% 0.00%
CAPITALSTRUCTURE 22

Driversoftheoptimaldebtratio
Marginaltaxrate= 36.10%
EBITDA/Enterprisevalue= 9.34%
EBIT/Enterprisevalue= 7.47%
Unleveredbeta= 0.9234

!Iamignoringworkingcapital

usetheriskfreerateasaperpetualgrowthrate.
Stock price buyback effect
Current Stock price = $67.71
# Shares outstanding before buyback 1800.00
Expected buyback price = $67.71 Enter this number

Current Debt = $16,089


Debt at Optimal = $68,983
New Debt issued = $52,895
# Shares bought back = 781.194474
Shares outstanding after buyback = 1018.81

Enterprise value after buyback = $155,052


+ Cash 3931
- Debt $68,983.32
Equity value after buyback $90,000.18
/ Number of shares after buyback 1018.81
Value per share for remaining shares $88.34
Enterprise Value

$160,000

$140,000

$120,000

$100,000

$80,000

$60,000

$40,000

$20,000

$0
Debt Ratio
DebtRatio Beta CostofEquity BondRating Interestrateondebt TaxRate
0% 0.9234 7.44% Aaa/AAA 2.87% 36.10%
10% 0.9889 7.82% Aaa/AAA 2.87% 36.10%
20% 1.0709 8.29% Aaa/AAA 2.87% 36.10%
30% 1.1762 8.90% Aa2/AA 3.12% 36.10%
40% 1.3167 9.71% A1/A+ 3.22% 36.10%
50% 1.5134 10.84% A2/A 3.37% 36.10%
60% 1.8084 12.54% B3/B 9.62% 36.10%
70% 2.3523 15.67% Caa/CCC 11.12% 33.68%
80% 3.5285 22.45% Caa/CCC 11.12% 29.47%
90% 7.8979 47.62% C2/C 18.12% 16.08%

DebtRatio $Debt InterestExpense


InterestCoverageRatioBondRating Pretaxcostofd
0% $0 $0 Aaa/AAA 2.87%
10% $13,797 $396 25.30 Aaa/AAA 2.87%
20% $27,593 $792 12.65 Aaa/AAA 2.87%
30% $41,390 $1,291 7.76 Aa2/AA 3.12%
40% $55,187 $1,777 5.64 A1/A+ 3.22%
50% $68,983 $2,325 4.31 A2/A 3.37%
60% $82,780 $7,963 1.26 B3/B 9.62%
70% $96,577 $10,739 0.93 Caa/CCC 11.12%
80% $110,373 $12,274 0.82 Caa/CCC 11.12%
90% $124,170 $22,500 0.45 C2/C 18.12%
CostofDebt(aftertax) WACC EnterpriseValue
1.83% 7.44% $127,553
1.83% 7.22% $133,072
1.83% 7.00% $139,091
1.99% 6.83% $144,196
2.06% 6.65% $149,902
2.15% 6.50% $155,052
6.15% 8.70% $103,066
7.37% 9.86% $87,624
7.84% 10.76% $78,501
15.21% 18.45% $41,558

Taxrate Aftertaxcostofdebt
36.10% 1.83%
36.10% 1.83%
36.10% 1.83%
36.10% 1.99%
36.10% 2.06%
36.10% 2.15%
36.10% 6.15%
33.68% 7.37%
29.47% 7.84%
16.08% 15.21%
Rating is Yes/No IBC
Aaa/AAA Yes High
Aa2/AA No Medium
A1/A+ Low
A2/A
A3/A-
Baa2/BBB
Ba1/BB+
Ba2/BB
B1/B+
B2/B
B3/B-
Caa/CCC
Ca2/CC
C2/C
D2/D
Not rated

Rating is Low IBC Medium High IBC


D2/D -30% -50.00% -100%
Caa/CCC -25% -40.00% -50%
Ca2/CC -25% -40.00% -50%
C2/C -25% -40.00% -50%
B3/B- -15% -25.00% -30%
B2/B -10% -20.00% -25%
B1/B+ -10% -20.00% -25%
Ba2/BB -10% -20.00% -25%
Ba1/BB+ -10% -20.00% -25%
Baa2/BBB -5% -10.00% -15%
A3/A- 0.00% -2.00% -5%
A2/A 0.00% 0.00% -2%
A1/A+ 0.00% 0.00% 0%
Aa2/AA 0.00% 0.00% 0%
Aaa/AAA 0% 0.00% 0%
Type of firm
1
2

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