What if discretionary debt sweep is positive?
Full Question: In calculating Discretionary Sweep for WMT, the formula had: -Min(Beginning Balance Revolver, Cash Flow before Discretionary Debt Repayment). In this case, Cash Flow before Discretionary Debt Repayment was negative and hence Discretionary Sweep became a positive number. I just com... Full Question:
In calculating Discretionary Sweep for WMT, the formula had: -Min(Beginning Balance Revolver, Cash Flow before Discretionary Debt Repayment). In this case, Cash Flow before Discretionary Debt Repayment was negative and hence Discretionary Sweep became a positive number.

I just completed another analysis and Discretionary Debt Repayment is positive. In that case, will the formula be: -Max(Beginning Balance Revolver, Cash Flow before Discretionary Debt Repayment)? Read More

How do I shade every 3rd row instead of alternate rows?
Full Question:
I had a follow-up question to the auto row shading taught in the Advanced Excel for Data Analysis class - what would the formula be if I wanted every 3, (or 4 or 5) rows colored, rather than every other row?

RE: How is the WACC - cost of debt affected by a tax benefit?
Recall that WACC and therefore, the cost of debt is based on marginal, incremental borrowing rate. You are always trying to capture a "normalized" run-rate discount rate. The fact that you have NOL's (tax benefit) should be irrelevant because again, one is trying to capture normalized tax rate and t... Recall that WACC and therefore, the cost of debt is based on marginal, incremental borrowing rate. You are always trying to capture a "normalized" run-rate discount rate. The fact that you have NOL's (tax benefit) should be irrelevant because again, one is trying to capture normalized tax rate and therefore, NOL's should be effectively ignored for this calculation. The sole point being that the NOL's will run out. To properly reflect the benefit of NOL's in valuation purposes, figure out normalized, run-rate valuation and then add the NOL on a net PV basis. The rationale is that the discount rate reflects the risk of the company and shouldn't be distorted by NOLs until the very end. The other way to incorporate NOL's is through the construction of a detailed tax schedule reflecting both deferred tax assets and liabilities. The NOL's obviously shelter income and therefore result in increased profit and cash flow in your DCF analysis, but either way, the mat should work out the exact same. Read More

RE: For the WACC, should I use YTM or coupon for cost of debt?
For WACC, you are supposed to use YTM, but for non-distressed, run-rate firms, we generally end up using coupon rate. For option-embedded bonds (putable, callable, exchangeable, convertible etc) technically neither YTM or coupon works since you must then incorporate TOTAL expected return on the capi... For WACC, you are supposed to use YTM, but for non-distressed, run-rate firms, we generally end up using coupon rate. For option-embedded bonds (putable, callable, exchangeable, convertible etc) technically neither YTM or coupon works since you must then incorporate TOTAL expected return on the capital, including capital gains as well! Keep in mind that cost of debt is technically supposed to be "incremental, marginal" borrowing rate, which cannot be physically observed until the next tranche of debt is actually issued, so YTM is the best proxy for that. Read More

RE: How to set up Sources & Uses for <100% LBO?
Yes and no. If less than 100% (assuming greater than 50&) then sources and uses should match true in and outflow of $$ by "grossing it up" the way you described, you are effectively creating a "fake" transaction. You are not technically incorrect (hence the "yes") but we wouldn't consider that a... Yes and no. If less than 100% (assuming greater than 50&) then sources and uses should match true in and outflow of $$ by "grossing it up" the way you described, you are effectively creating a "fake" transaction. You are not technically incorrect (hence the "yes") but we wouldn't consider that a best practice (the "no" part). Instead we wold have the %age of equity value flow thru s&u as it is actually happening. In your irr you adjust for the buyer/investor's %age ownership. Our Complex LBO online course covers this very neatly. Read More