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    This document contains examples of calculating free cash flow, valuation of a company using free cash flow, effective tax rates on dividends, and calculations for unlevering and levering beta and weighted average cost of capital. Specifically: 1) It calculates free cash flow of $1.55M for a company and values the company at $7.69M using free cash flow valuation. 2) It determines the effective tax rate on dividends is 58% for a company that pays dividends of 30% with corporate tax of 30% and shareholder tax of 40%. 3) It shows calculations to unlever and lever beta for a project and determine the levered equity beta is 0.893

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    This document contains examples of calculating free cash flow, valuation of a company using free cash flow, effective tax rates on dividends, and calculations for unlevering and levering beta and weighted average cost of capital. Specifically: 1) It calculates free cash flow of $1.55M for a company and values the company at $7.69M using free cash flow valuation. 2) It determines the effective tax rate on dividends is 58% for a company that pays dividends of 30% with corporate tax of 30% and shareholder tax of 40%. 3) It shows calculations to unlever and lever beta for a project and determine the levered equity beta is 0.893

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    © All Rights Reserved
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    9 views1 page

    Exam Tasks

    Uploaded by

    shehurina
    This document contains examples of calculating free cash flow, valuation of a company using free cash flow, effective tax rates on dividends, and calculations for unlevering and levering beta and weighted average cost of capital. Specifically: 1) It calculates free cash flow of $1.55M for a company and values the company at $7.69M using free cash flow valuation. 2) It determines the effective tax rate on dividends is 58% for a company that pays dividends of 30% with corporate tax of 30% and shareholder tax of 40%. 3) It shows calculations to unlever and lever beta for a project and determine the levered equity beta is 0.893

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    of 1

    Exam

    1.
    FCF = net income + depreciation/amortisation - capital expenditure - change in working capital +
    interest expense * (1-tax rate)

    FCF = 2 + 0,5 - 1 - 0,2 + 0,5(1-0,5) = $1,55 M


    Value of the company = 1,55/1,1 + 1,55/1,1^2 + 5 = $7,69 M

    2.
    Dividends paid = 600 x 0,30 = 180 CHF
    Tax (corporate payout) = 30%
    Tax (shareholder) = 40%

    E ective tax on dividends = (180*0,30 + (180-54)*0,40) / 180 = 58%

    It is a split-rate system.

    Midterm test

    1.
    Beta for equity for the comparable project = 0,8
    1) unleveling of beta :
    Beta asset = beta equity (1/(1+(1-t)*D/E) = 0,8 * (1/1+(1-0,3)*1) = 0,47
    2) levering beta:
    Beta equity (for the project) = beta asset * (1+((1-t)*D/E)) = 0,47 * (1+((1-0,4)*1,5)) = 0,893

    2.
    WACC = wd * rd * (1-tax rate) + we * re
    Wd = 1/4 = 0,25
    We = 3/4 = 0,75
    Tax rate = 40%
    Re = 5% + 1,3 * 5% = 11,5% (using CAPM)
    Rd = 12%

    WACC = 0,25 * 0,12 * (1-0,40) + 0,75 * 0,115 = 10,425%


    ff

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