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Implementation
Annisa Regita
Ardifah Aghnia Ulhaq
Ria Sulistyawati
There are various approaches that analyst
can follow to value a firm’s equity :
■ To value the firm’s equity directly as, for example, the sum of its book value of equity
and the present value of forecasted net profits, discounted at the cost of equity.
■ To value the firm’s business assets as the sum of these assets’ book values and the
present value of forecasted NOPAT plus NIPAT then discounted at the weighted
average cost of capital first and then calculate equity value as the difference
between the value of business assets and the after-tax value of debt claims.
■ To separately value operating assets as the sum of these assets’ book values and
the present value of forecasted NOPAT then discounted at the required return on
operating assets first and then calculate equity value as the sum of the value of
operating assets and the value of investment assets minus the after-tax value of
debt claims.
ORI014 = 5.85% SBR004 = 8.05%
Amount Weight Amount Weight
Equity 22,754 0.23 Equity 22,754 0.23
Debt 75,140 0.77 Debt 75,140 0.77
after tax value debt claims 0,060375 0,060375 0,060375 0,060375 0,060375 0,060375
Discount rate 8% 8% 8% 8,0% 8,0% 8,0%
0,754687
PV 0,7546875 0,7546875 0,7546875 5 0,7546875 0,7546875
total value of capital claims 11.091 19.186 44.456 52.085 53.038 66.921
Beta 1.86
Rm-Rf 2.95%
Cost of Equity 11.34%
Total value of Cost of Debt 8.00%
equity claims (2) Tax Rate 25.00%
ORI014 5.85%
after tax value debt claims 0,043875 0,043875 0,043875 0,043875 0,043875 0,043875
Discount rate 8% 8% 8% 8,0% 8,0% 8,0%
total value of capital claims 9.242 15.988 37.046 43.404 44.198 55.768
Computing
Estimated Value
Assets to Equity Values (all in Billions)
Steps
This approach concept is based on the nature the amount that investors
demand as additional return for bearing beta risk.
Computing Discount Rate
Weighted Average Cost of Capital (WACC)
Amount (in Billions) Weight
Equity 22,754 0.23
Debt 75,140 0.77
11.34%
Cost of equity
(ORI014)
Cost of debt 6.00%
WACC 7.24%
WACC indicates the return that both kinds of stakeholders (equity owners and
lenders) can expect to receive
Discounted Free Cash Flow (in Billions)
2017 2018F 2019F 2020F
Net Income 4,201 4,921 5,012 6,324
Increase in Net Debt (1,333) (1,439) (1,554) (1,667)