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    M&M Pizza

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    Kriti Ahuja
    This document compares the financial details of a company with and without debt. It shows that with debt, the cost of equity is higher at 9.88% versus 8% without debt, but the weighted average cost of capital is lower at 8% versus without debt at 8%. The value of the firm is the same whether it has debt or not at $1562.5. The share price is also the same at $25 using two different valuation methods.

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    M&M Pizza

    Uploaded by

    Kriti Ahuja
    994 views3 pages
    This document compares the financial details of a company with and without debt. It shows that with debt, the cost of equity is higher at 9.88% versus 8% without debt, but the weighted average cost of capital is lower at 8% versus without debt at 8%. The value of the firm is the same whether it has debt or not at $1562.5. The share price is also the same at $25 using two different valuation methods.

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    M&M Pizza.xlsx

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    This document compares the financial details of a company with and without debt. It shows that with debt, the cost of equity is higher at 9.88% versus 8% without debt, but the weighted average cost of capital is lower at 8% versus without debt at 8%. The value of the firm is the same whether it has debt or not at $1562.5. The share price is also the same at $25 using two different valuation methods.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as xlsx, pdf, or txt
    994 views3 pages

    M&M Pizza

    Uploaded by

    Kriti Ahuja
    This document compares the financial details of a company with and without debt. It shows that with debt, the cost of equity is higher at 9.88% versus 8% without debt, but the weighted average cost of capital is lower at 8% versus without debt at 8%. The value of the firm is the same whether it has debt or not at $1562.5. The share price is also the same at $25 using two different valuation methods.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as xlsx, pdf, or txt
    of 3

    Particulars No debt Debt

    EBIT 125 125


    Less: Interest 0 20
    125 105
    EAT (Dividend) 125 105
    D per share 2 2.47641509433962

    Cash Flow For Debt Holders 20


    Cash Flow for equity holders 125 105
    Cash Flow for the entire firm 125 125 (EBIT)(1-t)

    COD 0 4%

    Equity Beta 0.8 1.17647058823529


    COE 8.00% 9.88%
    WACC 8%

    Value of Debt 0 500


    Value of Equity 1562.5 1062.5
    Value of the firm 1562.5 1562.5 Cash flow/ wacc

    Share price Method 1 Dividend Per Share/COE


    25 25.0589622641509

    Method 2 Equity Value/No. of Shares


    25 25
    Particulars No debt Debt
    EBIT 125 125
    Less: Interest 0 20
    125 105
    EAT (Dividend) 100 84
    D per share 1.6 2.24
    Share Price 20 Shares Bought Back
    Cash Flow For Debt Holders 20
    Cash Flow for equity holders 100 84
    Cash Flow for the entire firm 100 100 104

    COD 0 3.20%

    Equity Beta 0.8 1.227


    COE 8.00% 10.13%
    WACC 8.00% 7.36% Benefit to the government

    Value of Debt 500 500


    Value of Equity 1250 828.9474
    Value of Firm 1250 1358.696

    DPS/ke
    Share Price 20 22.10526
    25 37.5 Shares Left

    312.5 207.2368 105.2632

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