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    Comparable Companies: Inter@rt Project

    Uploaded by

    Vincenzo Alterio
    The document contains financial data and calculations for comparable companies, an interest rate project over 5 years, and input cells highlighted in yellow. It calculates unlevered equity betas, weighted average costs of capital, and internal rates of return for the project based on debt percentages, tax rates, costs of equity and debt, and risk premiums. Various financial metrics are presented to evaluate the project's feasibility and profitability over the 5-year period.

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    Comparable Companies: Inter@rt Project

    Uploaded by

    Vincenzo Alterio
    221 views9 pages
    The document contains financial data and calculations for comparable companies, an interest rate project over 5 years, and input cells highlighted in yellow. It calculates unlevered equity betas, weighted average costs of capital, and internal rates of return for the project based on debt percentages, tax rates, costs of equity and debt, and risk premiums. Various financial metrics are presented to evaluate the project's feasibility and profitability over the 5-year period.

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    WACC_

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    The document contains financial data and calculations for comparable companies, an interest rate project over 5 years, and input cells highlighted in yellow. It calculates unlevered equity betas, weighted average costs of capital, and internal rates of return for the project based on debt percentages, tax rates, costs of equity and debt, and risk premiums. Various financial metrics are presented to evaluate the project's feasibility and profitability over the 5-year period.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    221 views9 pages

    Comparable Companies: Inter@rt Project

    Uploaded by

    Vincenzo Alterio
    The document contains financial data and calculations for comparable companies, an interest rate project over 5 years, and input cells highlighted in yellow. It calculates unlevered equity betas, weighted average costs of capital, and internal rates of return for the project based on debt percentages, tax rates, costs of equity and debt, and risk premiums. Various financial metrics are presented to evaluate the project's feasibility and profitability over the 5-year period.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 9

    Input cells are in yellow.

    Comparable Companies

    Firm 1 Firm 2 Firm 3 Average

    DATA Amount of equity 200 200 300


    Amount of debt 100 200 200
    Tax rate 40% 35% 38%
    Equity beta 2.00 4.00 2.50

    RESULT 1+ (1-T)D/E 1.30 1.65 1.41


    Unlevered equity beta 1.54 2.42 1.77 1.91

    Inter@rt Project
    Year 1 Year 2 Year 3 Year 4 Year 5
    DATA % Debt 17% 19% 28% 40% 50%
    % Equity 83% 81% 72% 60% 50%
    Tax rate 15% 15% 15% 15% 33%

    RESULT 1+ (1-T)D/E 1.17 1.20 1.33 1.57 1.67


    Unlevered project beta 1.91 1.91 1.91 1.91 1.91 = average of unlevered equity b
    Project equity beta 2.24 2.29 2.54 2.99 3.19

    DATA Risk-free rate 2.50% 2.50% 2.50% 2.50% 2.50% = yield on long-term Treasury bo
    Market risk premium 16.50% 16.50% 16.50% 16.50% 16.50% = historical average excess return

    RESULT Project equity beta 2.24 2.29 2.54 2.99 3.19


    Market risk premium 16.50% 16.50% 16.50% 16.50% 16.50%
    Equity risk premium 37.01% 37.81% 41.94% 49.39% 52.64%
    Plus risk-free rate 2.50% 2.50% 2.50% 2.50% 2.50%
    Cost of equity 39.51% 40.31% 44.44% 51.89% 55.14%

    DATA Cost of debt 12.0% 12.0% 12.0% 12.0% 12.0% = yield a return to lenders

    RESULT
    Year 1 Weighted Year 2 Weighted
    Weights Cost Weights Cost

    After-tax cost of debt 10.2% 17.0% 1.7% 10.2% 19.0% 1.9%


    Cost of equity 39.5% 83.0% 32.8% 40.3% 81.0% 32.7%
    Weighted average cost of capital 34.5% 34.6%
    IRR (internal Rate of Return)
    ge of unlevered equity betas of comparable firms

    n long-term Treasury bonds


    cal average excess return for start-up

    return to lenders

    Year 3 Weighted Year 4 Weighted


    Weights Cost Weights Cost

    10.2% 28.0% 2.9% 10.2% 40.0% 4.1% 8.0%


    44.4% 72.0% 32.0% 51.9% 60.0% 31.1% 55.1%
    34.9% 35.2%
    Year 5 Weighted
    Weights Cost

    50.0% 4.0%
    50.0% 27.6%
    31.6%
    Input cells are in yellow.

    Inter@rt Project
    Year 1 Year 2 Year 3 Year 4 Year 5
    DATA % Debt 17% 19% 28% 40% 50%
    % Equity 83% 81% 72% 60% 50%
    Tax rate 15% 15% 15% 15% 33%

    ROE @ 25% after Year 5 15.00% 16.00% 18.00% 20.00% 23.00% = yield to equity share holders du

    DATA Cost of debt 12.0% 12.0% 12.0% 12.0% 12.0% = yield a return to lenders

    RESULT
    Year 1 Weighted Year 2 Weighted
    Weights Cost Weights Cost

    After-tax cost of debt 10.2% 17.0% 1.7% 10.2% 19.0% 1.9%


    Cost of equity 15.0% 83.0% 12.5% 16.0% 81.0% 13.0%
    Weighted average cost of capital 14.2% 14.9%
    IRR (internal Rate of Return)
    > Beta=2;
    > Tax=36%;
    > **Credit Spread of eSafe rated as ʺCʺ (junk bond)=12%;
    > **Swap Interest rate avg. 2003 = 2.97% (for 4 years loan yearly paiyment);

    -> Bank Commission= 1.75%;


    -> Rs=5.4%+Beta*9%=23.4%

    -> Rb=1.75%+2.97%+12%=16.72%

    -> Rb*(1-tc)=16.72%*(1-0.36)=10.07%
    equity share holders during the life time of the project

    return to lenders

    Year 3 Weighted Year 4 Weighted


    Weights Cost Weights Cost

    10.2% 28.0% 2.9% 10.2% 40.0% 4.1% 8.0%


    18.0% 72.0% 13.0% 20.0% 60.0% 12.0% 23.0%
    15.8% 16.1%
    Year 5 Weighted
    Weights Cost

    50.0% 4.0%
    50.0% 11.5%
    15.5%

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