How do you calculate cost of equity?
Use the Capital Asset Pricing Model (CAPM), the formula is below. CAPM FormulaCost of equity= risk free rate + beta x equity risk premium
How do you calculate WACC?
The weighted average cost of capital weights out the three sources of capital: common shares, debt, and preferred shares. WACC formula= % Equity x Cost of Equity + % Debt x Cost of Debt x (1- Tax Rate) + % Preferred Shares x Cost of Preferred Shares % Equity = Equity / (Equity + Debt […]
What is WACC and when do we use it?
WACC is a blended weight-average between the cost of equity, the after-tax cost of debt, and the cost of preferred equity. You would use the weighted-average cost of capital (WACC) to discount unlevered free cash flow. UFCFs represent cash flows that are available to ALL stakeholders in the business, which includes both shareholders and debtholders. […]
How do you go from unlevered free cash flow to levered free cash flow?
Levered free cash flow = unlevered free cash flow + interest expense x (1 – tax rate) + debt borrowings – debt repayments
What is the difference between unlevered and levered free cash flow?
Unlevered means without the effects of debt. Therefore, unlevered free cash flows are cash flows before the effects of debt. They do not include interest or any debt payments or borrowings. Levered means with the effect of debt. Therefore, levered free cash flows are cash flows with the effects of debt. They include after-tax interest […]
What is the formula for unlevered free cash flow?
Levered Free Cash Flow = Net Income + Depreciation and Amortization – Capital Expenditures – Change in Net Working Capital + Debt Borrowings – Debt Repayments
What is the formula for unlevered free cash flow?
Unlevered Free Cash Flow (UFCF) = EBIT x (1 – Tax Rate) + Depreciation and Amortization – Capital Expenditures – Change in Net Working Capital
What are 4 ways to value a company and how do you rank them in terms of valuation?
Precedent transactions provide the highest valuation, since it reflects the multiple at which similar companies were acquired at. With acquisitions, there is a control premium, since companies will pay extra to own a company. Ownership provides control, and lets the owner decide what to do with the business, such as where to grow revenue or […]
What are 4 ways to value a company?
4 ways to value a company are: Comparable companies: looking at similarly sized companies in similar industries and seeing which multiples they trade at, then applying this multiple to the target company Precedent transactions: looking at past acquisitions and seeing which multiples they were acquired at, then applying this multiple to the target company Discounted […]
How would issuing shares affect the EV / EBITDA multiple?
When a company issues shares, they raise cash from investors while also increasing their equity value (market capitalization) by the same amount. In theory, assuming that investors are indifferent, there is no change to EV / EBITDA because the increase in equity value is offset by the increase in cash, since cash is deducted from […]
