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Excel-Based Model To Value Firms Experiencing Financial Distress

The document presents a valuation of McClatchy Company using the adjusted present value method for the years 2010 through 2015. It provides general assumptions regarding betas, interest rates, and equity premiums. It then lists specific data for McClatchy including share price, shares outstanding, market value of equity and debt, debt ratios, credit rating, and assumptions for growth rates and discount rates. Tables show projections for revenue, expenses, cash flows, debt payments, and valuation for each year, resulting in an estimated equity value per share ranging from $1.55 to $5.85 over the period.

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375 views4 pages

Excel-Based Model To Value Firms Experiencing Financial Distress

The document presents a valuation of McClatchy Company using the adjusted present value method for the years 2010 through 2015. It provides general assumptions regarding betas, interest rates, and equity premiums. It then lists specific data for McClatchy including share price, shares outstanding, market value of equity and debt, debt ratios, credit rating, and assumptions for growth rates and discount rates. Tables show projections for revenue, expenses, cash flows, debt payments, and valuation for each year, resulting in an estimated equity value per share ranging from $1.55 to $5.85 over the period.

Uploaded by

genergia
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLS, PDF, TXT or read online on Scribd
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Exhibit 16- 5 Present Value of McClatchey Company Using the Adjusted Present Valu

2010
2011
General Assumptions:
Comparable Company Unlevered Betaa
10 Year Treasury Bond Rate (%)
Cum. Probability of Default for Firm Rated B-b
Equity Premium
Specific Company Data: McClatchy
Price/sh @3/10/2010
Fully Diluted Shares outstanding
Market Value (MV) of Equity 3/10/2010
Market Value (MV) of Debt 3/10/2010c
MV of Debt / MV of Equity Ratio
Weighted average maturity of Mclatchy debt
McClatchy Credit Rating
McClatchy Company Assumptions:
Price to Earnings Ratio
Target Debt / Equity Ratio @2015
Implied Target Debt/Total Capital Ratio @2015d
Current Cost of Debte
Expected Cost of Bankruptcy (% of Firm Value)
Terminal Period Growth Rate
Unlevered Cost of Equity (2011 - 2015)f
Terminal Period WACCg
Revenue
Net Income (3.8% of revenue)
Depreciation (8% of revenue)
Change in Working Capital (3.5% of revenue)
Gross Capital Spending
Principal Repayments
Dividends Paid
Equity Cash Flow
Interest expense
Tax Shield (40% of interest expense)
Present Value:
PV Equity Cash Flow @9.89%
PV Terminal Value
Total PV
Plus: PV of Tax Shield
Adjusted Present Value of Firm
Less: Expected Cost of Bankruptcy @15%
Expected Cost of Bankruptcy @20%
Expected Cost of Bankruptcy @25%
Expected Cost of Bankruptcy @30%
Expected Cost of Bankruptcy @35%
Expected Cost of Bankruptcy @40%
Less: Market Value of Debt
Equals: Equity Value
Equals: Equity Value Per Share
Notes:

1.1344
3.65
0.4212
0.055
5.19
84,470,000
$438,399,300
$740,249,905
1.69
9.6 years
B6.00
0.33
0.25
10.65
.15 - .25
0.03
0.0989
0.0862
$1,471,584,000
$54,090,000
$142,889,000
$73,579,000
$13,574,000
$64,200,000
$14,905,000
$30,721,000
$107,353,000
$42,941,200

$650,896,030
$666,224,915
1.02

4.00

$1,398,004,800
$53,124,182
$111,840,384
$48,930,168
$13,980,048
$74,024,991
$10,905,000
$17,124,360
$96,617,700
$38,647,080

$2,026,598
$1,445,999,847
$1,448,026,445
$3,868,418
$1,451,894,863
$217,784,229
$290,378,973

$740,249,837
$493,860,796
$5.85

$740,249,837
$421,266,053
$4.99

Comparable company unlevered beta = comparable company levered beta / (1 + (1 - marginal tax rate) x comparable compan
= 1.924 / (1 + (1 - .4) x 1.16) = 1.1344 (Based on top 10 U.S. newspapers in terms of marke
b
See Exhibit 13 - in Chapter 13.
c
Market value of debt = Interest Expense x {[1 - 1 / (1 + i)n ] / 1+ i} + Face value of debt / (1+ i)n =
= $107,353,000 x {[1 - 1 / (1.1065)9.6 ] / 1.1065} + 1,796,436,000 / (1.1065)9.6 = 60,298,095 + 679,951,810 =
d
Implied debt to total capital ratio = (D/E) / (1 + D/E) =.33 / 1.33 = .25
e
Cost of debt equals the risk free rate of 3.65 percent plus a 7 percent default spread based on McClatchy's rating of B- from S
f
Unlevered Cost of Equity = .0365 + 1.1344 (.055) = .0989
g
Terminal Period WACC = .25 x (1 - .4) x .08 + .75 x .0989 = .012 + .0742 = .0862

ompany Using the Adjusted Present Value Method


2012
2013

$854,892,890
$599,602,423
0.70

$1,054,809,813
$539,642,181
0.51

2014

2015

$1,307,204,929
$485,677,963
0.37

$1,616,136,550
$437,110,166
0.27
A

4.00

4.00

5.00

6.00

0.08

$1,342,084,608
$50,999,215
$107,366,769
$46,972,961
$20,131,269
$66,622,491
$5,905,000
$18,734,262
$86,955,930
$34,782,372

$1,315,242,916
$49,979,231
$105,219,433
$46,033,502
$26,304,858
$59,960,242
$5,905,000
$16,995,061
$78,260,337
$31,304,135

$1,328,395,345
$50,479,023
$106,271,628
$46,493,837
$33,209,884
$53,964,218
$5,905,000
$17,177,712
$70,434,303
$28,173,721

$1,354,963,252
$51,488,604
$108,397,060
$54,198,530
$33,874,081
$48,567,796
$5,905,000
$17,340,256
$63,390,873
$25,356,349

$362,973,716
$435,568,459
$508,163,202
$740,249,837
$348,671,310
$4.13

$740,249,837
$276,076,567
$3.27

$740,249,837
$203,481,824
$2.41

$580,757,945
$740,249,837
$130,887,081
$1.55

1 - marginal tax rate) x comparable company debt / equity) =


n top 10 U.S. newspapers in terms of market capitalization.

debt / (1+ i)n =


0 / (1.1065)9.6 = 60,298,095 + 679,951,810 = $740,249,905

ad based on McClatchy's rating of B- from S&P

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