Valuing the cash flows to capital under the pre-bid plan when interest tax s (millions of dollars except per share data) 1989 1990 1991 1992 Cash Flows Cash Flows available for capital payments 517 948 1399 2073 Cash Interest [a] 582 662 693 690 Cash Flows available for capital [b] 1099 1610 2092 2763 Discount Rate [c] 14.6 14.6 14.6 14.6 Cumulative discount factor [d] 0.87 0.76 0.66 0.58 Present Value Valuation Growth in cash flows after 1998 0 2 4 Present value of cash flows, 1989-98 13553 13553 13553 Present Value of terminal value [e] 8008 9279 11030 Less: Assumed Debt 21561 22832 24583 Net Value 16357 17628 19379 Net Value per share [f] 71 77 85 a=case exhibit 5 b=cash flows available for capital equal cash flows available for capital pa c=discount rate is computed using the CAPM, with an unlevered asset beta of d=the cumulative discount factor for each year is the present value of $1 re e=calculated as the present value in 1988 of a growing perpetuity of the 199 f=assumes 229 million shares outstanding
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Valuing the cash flows to capital under the pre-bid plan when interest tax shields are included in the cash flows
(millions of dollars except per share data)1989 1990 1991 1992 1993
Cash Flows
Cash Flows available for capital payments [a] 517 948 1399 2073 2551
Cash Interest [a] 582 662 693 690 658
Cash Flows available for capital [b] 1099 1610 2092 2763 3209
Present value of cash flows, 1989-98 13553 13553 13553
Present Value of terminal value [e] 8008 9279 11030
Less: Assumed Debt 21561 22832 24583
Net Value 16357 17628 19379
Net Value per share [f] 71 77 85
a=case exhibit 5b=cash flows available for capital equal cash flows available for capital payments plus cash interestc=discount rate is computed using the CAPM, with an unlevered asset beta of 0.70, a risk-free rate of 9% and a risk premium of 8%d=the cumulative discount factor for each year is the present value of $1 received at the end of the yeare=calculated as the present value in 1988 of a growing perpetuity of the 1998 cash flow available to capitalf=assumes 229 million shares outstanding
Valuing the cash flows to capital under the pre-bid plan when interest tax shields are included in the cash flows
1994 1995 1996 1997 1998
2869 3253 3617 4075 4589
594 458 410 259 -21
3463 3711 4027 4334 4568
14.6 14.6 14.6 14.6 14.6
0.44 0.39 0.34 0.29 0.26
c=discount rate is computed using the CAPM, with an unlevered asset beta of 0.70, a risk-free rate of 9% and a risk premium of 8%
e=calculated as the present value in 1988 of a growing perpetuity of the 1998 cash flow available to capital
Cost of capital under the pre-bid plan using tax-adjusted discount rates (millions of dollars)
a=cost of debt is assumed to be the risk free rate because the beta of the debt is assumed to be zero. The tax rate is 34%b= the market value of equity is assumed to grow at the cost of equityc= the levered equity beta (beta-e)=E/V[beta-a], where E is the market value of jr nabisco and beta-a is the unlevered asset betad=caculated using the CAPM
1996 1997 19980 0 0
35649 40853 4681835649 40853 46818
0.7 0.7 0.714.6 14.6 14.614.6 14.6 14.6
a=cost of debt is assumed to be the risk free rate because the beta of the debt is assumed to be zero. The tax rate is 34%
c= the levered equity beta (beta-e)=E/V[beta-a], where E is the market value of jr nabisco and beta-a is the unlevered asset beta
As per sheet 1070 1258 1502 1552ValuationGrowth in cash flows after 1998 0% 2%Present value of cash flows,1989-1998 12910 12910Present value of terminal value(f) 8273 9586
21183 22496Less: Assumed debt 5204 5204Net value 15979 17292Net value per share(g) 69.77729 75.51092
Assume 229 million shares outstandingAssume a 34% tax rate equals interest in Exhibit 5 times 66%
Valuing the cash flows for capital under the pre bid plan using tax adjusted discount rates(millions of dollars except per share data)1994 1995 1996 1997 19982869 3253 3617 4075 4589
Valuing the cash flows to capital under the managemnt group plan when interest tax sheilds are included in the cash flows(mn of dollrs exceot per share data)
As per she 12923 1482 1465 1429ValuationGrowth in cash flows after 1998 0% 2%Present value of cash flows,1989-1998 23982 23982Present value of terminal value(f) 6427 7447
30408 31428Less: Assumed debt 5204 5204Net value 25204 26224Net value per share(g) 110.0611 114.5153
Valuing the cash flows to capital under the managemnt group plan when interest tax sheilds are included in the cash flows(mn of dollrs exceot per share data)
(a) Using a 34% tax rate, after tax debt rates are calculated as 66% of the CAPM determined rate based on the assumed beta. Preferred stock expected returns are also calculated using the CAPM(b) Exhibit TN-5c Value at the beginning of the year. Assumes that the market value of equity begins at the management groups equity investment of $2.5 billion and grows at the cosqt of equity
(d) The equity beta with positive subordinated debt and preferred stock betas is
TN-6 Cost of capital under management group plan using tax adjusted discount rates (millions of dollars)
Using a 34% tax rate, after tax debt rates are calculated as 66% of the CAPM determined rate based on the assumed beta. Preferred stock expected returns are also calculated using the CAPM
Value at the beginning of the year. Assumes that the market value of equity begins at the management groups equity investment of $2.5 billion and grows at the cosqt of equity
The equity beta with positive subordinated debt and preferred stock betas is
Using a 34% tax rate, after tax debt rates are calculated as 66% of the CAPM determined rate based on the assumed beta. Preferred stock expected returns are also calculated using the CAPM
Value at the beginning of the year. Assumes that the market value of equity begins at the management groups equity investment of $2.5 billion and grows at the cosqt of equity
Valuing the cash flows to capital under the managemnt group plan when tax adjusted discount rates are included in the cash flows(mn of dollrs exceot per share data)
As per she 12411 1187 1259 1308 1284ValuationGrowth in cash flows after 1998 0% 2%Present value of cash flows,1989-1998 23375 23375Present value of terminal value(f) 8175 9580
31550 32955Less: Assumed debt 5204 5204Net value 26346 27751Net value per share(g) 115.048 121.1834
Valuing the cash flows to capital under the managemnt group plan when tax adjusted discount rates are included in the cash flows(mn of dollrs exceot per share data)
As per she 5480 4283 2059 1891 1672 1532 1401 1283ValuationGrowth in cash flows after 1998 0% 2% 4%Present value of cash flows,198 21872 21872 21872Present value of terminal value(f 7572 8774 10429
29444 30646 32301Less: Assumed debt 5204 5204 5204Net value 24240 25442 27097Net value per share(g) 105.8515 111.1004 118.3275
a=using a 34% tax rate, after tax debt rates are calculated as 66% of the CAPM determined rate based on the assumption beta. Preferred stock expected returns are also calculated using the CAPM.b= exhibit 9c=value at the beginning of the year. Assumes that the market value of equity begins at KKR's equity investment of $2.5 billion and grows at the cost of equity. Convertible debt becomes equity in 1992.
a=using a 34% tax rate, after tax debt rates are calculated as 66% of the CAPM determined rate based on the assumption beta. Preferred stock expected returns are also calculated using the CAPM.
c=value at the beginning of the year. Assumes that the market value of equity begins at KKR's equity investment of $2.5 billion and grows at the cost of equity. Convertible debt becomes equity in 1992.
1997 1998
0 00 0
149 00 00 0
9365 732020926 2432430441 31644
0.9 0.816.2 15.713.4 13.7
Valuing the cash flows to capital under the KKR's plan using tax adjusted discount rates (mn of dollrs exceot per share data)
As per she 4854 3941 1813 1758 1625 1565ValuationGrowth in cash flows after 1998 0% 2% 4%Present value of cash flows,1989-1998 21206 21206 21206Present value of terminal value(f) 9628 11268 13583
30834 32474 34789Less: Assumed debt 5204 5204 5204Net value 25630 27270 29585Net value per share(g) 111.9214 119.083 129.1921
Cash flows for available for capital payments[h] [exh.5] 517 948 1399Cash interest [exh.5] 582 662 693Cash flows available for capital [h] 1099 1610 2092present value 959 1225 1390
Cash flows for available for capital payments[h] [exh.5] 12018 593 919Cash interest [exh.5] 2792 1353 1286Cash flows available for capital [h] 14810 1946 2205present value 12923 1482 1465
Cash flows for available for capital payments[h] [exh.5] 3732 3521 1414Cash interest [exh.5] 2548 2103 1685Cash flows available for capital [h] 6280 5625 3099present value 5480 4283 2059
Summary of the values of the three different rjr nabisco plans when interest tax shields are included in the cash flows (millions of dollars except per share data)
Valuing the cash flows to capital under the pre-bid plan [interest tax shields in cash flows]
Valuing the cash flows to capital under the management group plan [interest tax shields in cash flows]
Valuing the cash flows to capital under KKR's plan [interest tax shields in cash flows]
TN-13 Summary of values of the three different RJR Nabisco plans using after tax adjusted discount rates (millions of dollars except pe share data)1989 1990 1991 1992
Valuing the cash flows to capital under the prebid plan (interest tax shield in WACC)Cash Flows Available for 517 948 1399 2073
Capital Payments (f) 384 437 457 455After tax cash interestCash Flows Available for 901 1385 1856 2528
Valuing the cash flows to capital under the management group plan (interest tax shields in WACC)Cash Flows Available for
Capital Payments 12018 593 919 1282After tax cash interest 1843 893 849 781Cash Flows Available for
Capital 13861 1486 1768 2063WACC 11.70% 12.00% 12.20% 12.40%Cumulative WACC 0.9 0.8 0.71 0.63Present Value 12411 1187 1259 1308
Valuing the cash flows to capital under the KKR's plan (interest tax shields in WACC)Cash Flows Available for
Capital Payments 3732 3521 1414 1740After tax cash interest 1682 1388 1112 1005Cash Flows Available for
Capital 5414 4909 2526 2745WACC 11.50% 11.70% 11.90% 12.00%Cumulative WACC 0.9 0.8 0.72 0.64Present Value 4854 3941 1813 1758
a calculated as a perpetuity of the 1998 cash flowsb present cdef
TN-13 Summary of values of the three different RJR Nabisco plans using after tax adjusted discount rates (millions of dollars except pe share data) a b c d1993 1994 1995 1996 1997 1998 Terminal VTotal Less Debt Equity Val
NOTE: Data for prebid strategy are from Exhibit 5; for the management group strategy fro Exhibit 6 and for KKR's strategy from exhibit 7(a) terminal values are calculated as perpetuities of the 1998 value without growth using a 14.6% discount rate(b) Calculated using a 14.6% discount rate
1993 1994 1995 1996 1997 1998 1998 Terminal Value (a)
NOTE: Data for prebid strategy are from Exhibit 5; for the management group strategy fro Exhibit 6 and for KKR's strategy from exhibit 7terminal values are calculated as perpetuities of the 1998 value without growth using a 14.6% discount rate