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Multiples & WACC
Questions/Discussions
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2005A EBIT
Hi, would you like us to use the 2005A EBIT numbers from the video (which for Kohl's, Sears, and Target seem to be the unadjusted EBIT numbers) or would you like us to use the ones that are automatically pulled by the links on the given template? Thank you for the assistance.
Multiples & WACC class
Hi,
(1). When calculating the D/E ratios for WACC, we are grabbing a “Total Debt” figure that includes M.I. (of course for the companies that have it). Don’t you think this is not appropriate and in some sense overstate the D/E ratio (forgetting about the relevance of the amounts and to be ...
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2. Since preferred equity is closer to debt, does that mean cost of debt < cost of preferred equity < cost of equity? How do you calculate the returns and valuation multiple to preferred equity holders? Does this impact returns and valuation multiple of P/E for common equity holders if you have preferred equity in the equation?
3. Does this affect the FCFF calculation for DCF? I don’t think so right since it is capital structure neutral?
4. If you were to use preferred equity in WACC then how do you calculate FCFE in the case where preferred equity is used vs not used in WACC?
5. How do you calculate cost of preferred equity & where can you find whether it’s taxable from financial statements?
6. Capital charge in EVA: is there a variation where you include preferred equity? You just use the WACC you calculated above that includes preferred equity?
7. marginal tax rate: what if the company or its peers has these conditions (when you are levering and unlevering beta) and also when you are spreading comps
a. Using tax credit hence they are paying tax close 0 in current year and prior years?
b. If the company has tax breaks due to the industry it operates in hence all of its peers have low % tax eg <10%?
c. I think some types of companies eg LLC etc have very low tax rate, what if a company owns several subsidiaries with such structures such that their income tax rate (income tax expense paid as % of pretax income) is much less than 35-40% standard corporate tax rate, for example <5% through the prior years?
8. Is there a difference between marginal tax rate in the lever/unlever of beta vs income tax rate on your P&L vs effective tax rate? When do you use each of them? Read More