Calculate delphis equity beta again assuming a constant

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Reference no: EM132401312

Assignment

Perform all calculations within your spreadsheet, clearly labeling the components. Create cells for each input parameter, e.g., the market risk premium, and use cell references rather than just typing in numbers in formulas.

Content

Address the following in your paper.

4. Value the restructured Delphi. In your Word file, describe the main elements of the calculation as well as the key numbers you derive. If you wish, you may paste excerpts of your spreadsheet into appropriate sections of your Word file, or you may simply refer the reader to the spreadsheet. In addition to the base valuation I describe below, perform sensitivity or scenario analysis, varying some of the figures from this assignment file or those from the case exhibit. You may also consider modified versions of the process I suggested below.

5. Derive the recovery % row of Exhibit 8 for the four different enterprise value outcomes.

#4 Suggestions

A. Modify EBIT for cash flow purposes to equal Operating Income + Other Income. Also, assume taxes are zero for 2008, and apply a 40% tax thereafter instead of using the projected values for tax expense.

B. For years after 2011, assume a 2% terminal growth rate in total revenues, depreciation & amortization, and (modified) EBIT. Assume, however, that for 2012 and onward, capital expenditure matches depreciation.

C. Assume the 2012 working capital change is zero.

D. Discount free cash flows with a WACC based on the CAPM.

a. Assume a market risk premium of 7% over 10-year treasury bonds.

b. Use LT debt and its current portion from the projected balance sheet as your estimate of market value of debt.

c. Assume that the cost of debt is 0.75% lower than the promised yield on the second lien to GM.

d. Derive a debt beta from the cost of debt.

e. For each comparable firm, assume a 0.3 debt beta and find the asset beta using the constant leverage ratio version of the formula

f. Set Delphi's asset beta equal to the mean asset beta for the comparables.

g. Calculate Delphi's equity beta, again assuming a constant leverage ratio.

h. Use the discounted value of equity from part E as the basis for your equity weight.

i. Allow iterative calculations in Excel's settings.

E. Subtract debt from the PV of free cash flows to find equity (on the assumption that excess cash = 0), and then find equity value per share.

F. Notice that the bottom three rows of Exhibit 6 appear with the intended signs for cash flow adjustments. For example, the table projects NWC will decline from 2009 through 2011.

#5 Suggestions

A. You may use data from Exhibit 5's row for General Unsecured and ERISA claims-the claim amount, the recovery breakdown between shares and rights, and the discount offered by the rights.

Also, take as given the total outstanding shares figure from Exhibit 8.

B. From that data and the plan share price, you may calculate the number of shares issued to the General Unsecured and ERISA claimants, the value of each right, the number of rights, and the exercise price.

These figures then allow calculation of the recovery % given any enterprise value. Note that the rights holders must exercise their rights at the exit from bankruptcy or else not at all-the plan values the rights at S-K rather than a higher value they might have if the expiration date were later.

Attachment:- Data File.rar

Reference no: EM132401312

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