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American Chemical Corporation.
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| Submitted: Mon Jun 19 2006
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American Chemical Corporation Table of Content 1. ESTIMATION OF WACC 3 1.1. CALCULATION DETAILS 3 1.2. RESULTS 3 2. PROJECTION OF THE INCREMENTAL CASH FLOWS 3 2.1. PROJECTED FREE CASH FLOWS 3 2.2. ASSUMPTIONS 3 3. NET PRESENT VALUE USING THE WACC METHOD 4 3.1. NET PRESENT VALUE 4 3.2. ASSUMPTIONS 4 4. CALCULATION OF THE DEBT TAX SHIELD 4 5. NET PRESENT VALUE USING THE APV METHOD 5 5.1. APV METHOD 5 5.2. ASSUMPTIONS 5 6. APPENDIX 6 6.1. DEBT TAX SHIELD 6 6.2. INCREMENTAL CASH FLOW 6 1. Estimation of WACC 1.1. Calculation details For the calculation of the WACC we used the following parameters: Riskfree 5.73 U.S. government bond USGG10YR Yearly average return of period: 1.1.1974 to 31.12.1978, source Bloomberg Beta Assets 1.10 Beta Stock 1.20 From the case study 9-280-102 Market Rm 8.56 S&P SPX Yearly average return of period: 1.1.1974 to 31.12.1978, source Bloomberg Debt Ratio* 35.00% Target capital structure Equity Ratio* 65.00% Target capital structure Corp. Tax 48.00% From the case study 9-280-102 Debt Interest 11.25% From the case study 9-280-102 kE 9.13% By using the CAPM as shown below kA 9.22% The estimation of ke is based on the CAPM as follows: 1.2. Results Finally, the WACC was calculated using kE of 9.13% and the target dept / equity ratio of 35 / 65 considering a corporate tax rate of...
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