Forum Replies Created
- Posts
Sorry, problem solved. when doing the APV, we should use the ungeared cost of capital as discount rate. THANKS!
From my understanding, the Asset beta is the beta unlevered, and indicates the business risk to the market. For the company, the business activity is revenue generation. so the proportion of revenue generate by each business activity in the company can be seen as the proportion of each corresponding business risk associated. In the case, because financial sector generated one third of total revenue, then it should be the 33% of the total business composition.
That is just my understanding.
Hi John,
Thanks for your reply. But I checked around on both Internet and study materials. They all indicated that NOPAT has contained deprecation amount. Especially when we look at the EVA Valuation Method for cooperate valuation, (EVA= NOPAT- WACC*Capital employed), It is cleared shown that to arrive at NOPAT, the “replacement cost depreciation (economic depreciation)” has replaced the “accounting deperciation”.
I am totally confused, Can you clarify it if you have time? Thank you!
I have another confusing on the same question. According to the FCFE Formula: FCFE = Net Income – Net Capital Expenditure – Change in Net Working Capital + New Debt – Debt Repayment. My question is why the debt repayment of $31M has not been deducted from the value arrived?
Hi Laegjei,
Normally the risk free rate is the government 90-day bonds rate. In the question given, the company paying the interest of 8% , which is 380 basis point (3.8%)above the government base rate. That means the government base should be 8%-3.8%=4.2%. 4.2% would be the risk free rate.