1 Financial Statements

ESERCIZIO WOOPCALP

In its first year of existence a start-up bought T-shirts for 100k and sold them for 200k in France. All
payments and delivery will take place next year. What is the annual pre tax income (in thousands).

The answer is 100K even if the cash didn’t move.

In its fist year of existence, a start-up buys (and pays) 100 of input material, but does not realize any
sale. What's the company's profit (neglecting other costs and income)? 0

Sales – cost of good sold: profit, in terms of income statement you haven’t lost.

Your assistant has a PhD. You therefore declare his salary to be an investment in R&D and depreciate
it over 10 years. What will be the effect on net income. Increase your NI because when capitalize its
an investment and the depreciation is lower. Lo capitalizzi su più anni e non è quindi un costo intero
di quest anno.

Your assistant has a PhD. You therefore declare his salary to be an investment in R&D and depreciate
it over 10 years. What will be the effect on the size on the (afer tax) free cash flow to the firm?
Decrease. I decrease my income and I must pay more taxes. The only difference is the decrease in
taxes I must pay.

Quindi ammortizzando con le tasse ci pago tasse minori.

What do the amounts in the right hand side of the balance sheet represent? 1,2

1. The money invested by investors in the past

2. The money that the firm needs to give back to investors

What do the amounts on the left side of the balance sheet represent? 1,2,3

1. The historical cost of the different assets (minus depreciation).

2. The market value of the assets.
3. The present value of the future cash flows produced by the assets.

What is goodwill? 1

1. An accounting adjustment that is necessary if a company is acquired for a price that is higher
than its book value?
2. An intangible asset that can be evaluated by specialists.

What happens if company A buys company B for a valley that is lower than the asset value? 2

1. The difference is listed as badwill on the balance sheet.

2. The difference is considered as additional profit and put as reserves on the liability side of
the balance sheet.

What is the definition of Free Cash Flow to the Firm? 3

1. The money available for shareholders

2. The money available for creditors
 3. The (theoretical) increase in the cash account over one year if the firm had no debt
4. The increase in the firm's cash account over one year

Which of the following calculations result in the Free Cash to the Firm? (Several answers possible)
2,3

1. Operating + Investing + Financing Cash

2. EBIT - adjusted/unlevered taxes + D&A - increase in Working Capital - Capex
3. EBITDA - adjusted/unlevered taxes - increase in Working Capital - Capex
4. Net income + D&A- increase in Working Capital - Capex - change in debt
5. Net income + interest - D&A- increase in Working Capital - Capex

Which of the following calculations result in the Free Cash to Equity? (Several answers possible)
3,4

1. Operating + Investing + Financing Cash

2. EBIT - adjusted/unlevered taxes + D&A - increase in Working Capital - Capex
3. EBITDA - adjusted/unlevered taxes - increase in Working Capital - Capex - interest*(1-tax
rate) - change in debt
4. Net income + D&A- increase in Working Capital - Capex - change in debt
5. Net income + interest - D&A- increase in Working Capital - Capex

In its first year of existence, a start-up buys (and pays) 100 of input material, but does not realize any
sale. What is the company's profit (neglecting other costs and income)? 0

Your assistant has a PhD. You therefore declare his salary to be an investment in R&D and depreciate
it over 10 years. What will be the effect on net income 1

1. Increase
2. Decrease

Your assistant has a PhD. You therefore declare his salary to be an investment in R&D and depreciate
it over 10 years. What will be the effect on the size on the (after tax) free cash flow to the firm?
2

1. Increase
2. Decrease

What do the amounts in the right hand side of the balance sheet represent? 1,2

3. The money invested by investors in the past

4. The money that the firm needs to give back to investors

What do the amounts on the left side of the balance sheet represent? 1,2,3

4. The historical cost of the different assets (minus depreciation).

5. The market value of the assets.
6. The present value of the future cash flows produced by the assets.

What is goodwill? 1
 3. An accounting adjustment that is necessary if a company is acquired for a price that is higher
than its book value?
4. An intangible asset that can be evaluated by specialists.

What happens if company A buys company B for a valley that is lower than the asset value? 2

3. The difference is listed as badwill on the balance sheet.

4. The difference is considered as additional profit and put as reserves on the liability side of
the balance sheet.

What is the definition of Free Cash Flow to the Firm? 3

5. The money available for shareholders

6. The money available for creditors
7. The (theoretical) increase in the cash account over one year if the firm had no debt
8. The increase in the firm's cash account over one year

Which of the following calculations result in the Free Cash to the Firm? (Several answers possible)
2,3

6. Operating + Investing + Financing Cash

7. EBIT - adjusted/unlevered taxes + D&A - increase in Working Capital - Capex
8. EBITDA - adjusted/unlevered taxes - increase in Working Capital - Capex
9. Net income + D&A- increase in Working Capital - Capex - change in debt
10. Net income + interest - D&A- increase in Working Capital - Capex

Which of the following calculations result in the Free Cash to Equity? (Several answers possible)
3,4

6. Operating + Investing + Financing Cash

7. EBIT - adjusted/unlevered taxes + D&A - increase in Working Capital - Capex
8. EBITDA - adjusted/unlevered taxes - increase in Working Capital - Capex - interest*(1-tax
rate) - change in debt
9. Net income + D&A- increase in Working Capital - Capex - change in debt
10. Net income + interest - D&A- increase in Working Capital - Capex

WOOCLAP

Which one of the following terms can NOT be the top line of an income statement?

Income,

Net profit

D and A is

A non cash expense

Which of the following expenses are part of the operating expenses

COGS

SG&A

Is not exchange between investor and firm so NO interest

Operating liabilities

Payables

NOT short term dept it is financial, NOT deferred taxes

NOT prepaid expenses since are asset

Accrued expenses are operating liabilities

Which of the following concepts refers to the total amount of a company's financial (as opposed to
operating) liabilities? Invested capital

What is the definition of Free Cash Flow to the Firm? The (theoretical) increase in the cash account
over one year if the firm had no debt

Detto anche unlevered

Which of the following calculations result in the Free Cash to the Firm? (several answers possible)

EBIT - adjusted/unlevered taxes + D&A - increase in Working Capital – Capex

This is the same EBITDA - adjusted/unlevered taxes - increase in Working Capital – Capex since you
are not subtracting DA you do not have to add it back.

We do not want the interest cause it is a finance expense and we want operating

NOPAT and NOPLAT is the same

Which one(s) of the following definitions correspond to the "Enterprise Value" (EV)?

Market Cap + Net Debt ( Net Debt = Market Value of debt - Cash)

It is also market value of operating assets

Cash debt

Operating assets equity

Which of the following statements is correct

A firm's enterprise value can be calcluated by discounting the Free Cash to the Firm at the cost of
capital.

A firm's equity value can be calculated by discounting the Free Cash to Equity at the cost of equity.
This is the PV of equity approach

2 Present Value and Discount Factors 1

When calculating the NPV of an investment, the discount factor should correspond to 3

1. The cost of equity

2. The interest rate at which the investor can borrow
3. The investor's required return
4. The investment's rate of depreciation

A certain chemical production process comes with a high risk of explosions. When calculating the
NPV of this project, do we need to increase the discount rate to adjust for this risk? 2

1. Yes
2. No

Which of the following terms design the risk requiring a risk premium? 3,4,5

1. idiosyncratic risk
2. specific risk
3. systematic risk
4. market risk
5. non-diversifiable risk
6. diversifiable risk

After one year, an investment will pay out a cash flow of 110 or a cash flow of zero, both with a
probability of 50%. If you want to achieve an expected return of 10%, what is the maximum amount
you should pay for this investment? 50

After one year, an investment will pay out a cash flow of 110 or a cash flow of 0, both with a
probability of 50%. If you buy this investment for a price of 100 what is the return in case of success?
(Answer in percent but without the percentage sign, add "-" for negative returns) 120

After one year, an investment will pay out a cash flow of 110 or a cash flow of zero, both with a
probability of 50%. If you buy this investment for a price of 100 what is the return in case of failure?
(Answer in percent but without the percentage sign, add "-" for negative returns) -100

After one year, an investment will pay out a cash flow of 110 with a probability of 40% or a cash flow
of zero, with a probability of 60%. If you want to achieve an expected return of 10%, what is the
maximum amount you should pay for this investment? 40
Company A's shares have a value of 100. After company B makes a takeover offer for a price of
130/share, the price increases to 120. What is the probability that the market assigns to the takeover
succeeding? 4

1. 10%
2. 33%
3. 50%
4. 66%
5. 90%

3 Present Value and Discount Factors 2

The beta of an investment measures its (several answers) 3,4,6

1. idiosyncratic risk
2. specific risk
3. systematic risk
4. market risk
5. diversifiable risk
6. non-diversifiable risk

The market risk premium corresponds to 4

1. The difference between the return on the S&P 500 and US treasury bonds between 1926 and
now
2. The expected long term return of the market
3. 5,53%
4. The expected long term outperformance of the overall market compared to a risk free
investment

The risk free rate is 0% and the market risk premium 5%. A certain stock has a beta of 2. If next year
the stock market increases by 10%, we expect the stock to increase by 4

1. 5%
2. 10%
3. 15%
4. 20%

The risk free rate is 0% and the market risk premium 5%. A certain stock has a beta of 2. In the long
run, we expect the stock to generate a return of 2

1. 5%
2. 10%
3. 15%
4. 20%

The risk free rate is 2% and the market risk premium 5%. Based on inside information, I know that a
certain stock with a beta of 1 will generate a return of 5%. Should I 2
 1. Buy the stock
2. Sell the stock

Can you sort the following companies from the likely lowest to the likely highest beta?

1. Gold Mine
2. Pharmaceuticals
3. Retail
4. Construction Machines

Stocks with smaller market capitalization have positive Jensen's alpha. Therefore 3

1. you should invest in these companies

2. you should not invest in these companies
3. you are indifferent because you are compensated for a higher risk that is not measured by
the beta

If I want to take the size effect into account when calculating the cost of capital of a small company
1

1. I have to use a higher discount rate than the one determined by CAPM
2. I have to use a lower discount rate than the one determined by CAPM
3. I have to use a lower expected cash flow
4. I cannot take into account the size effect

"The risk free rate is 0%. In the Fama-French 3 factor model, a stock has a market beta of 1, a SMB
factor beta of 0.5 and a HML factor beta of 0. If the risk premia for these factors are as follows, what
is the expected return of the stock: Market premium: 5%, SMB premium: 3%, HML premium: 4%"

6,5

The risk free rate is 0%. In the Fama-French 3 factor model, a stock has a market beta of 1, a SMB
factor beta of 0.5 and a HML factor beta of 0. This means that 1

1. The stock behaves more like a small stock

2. The stock behaves more like a large stock
3. The stock behaves more like a value stock (i.e. high book to market)
4. The stock behaves more like a growth stock (i.e. low book to market)

When calculating the NPV of an investment, the discount factor should correspond to

The investor s required return

A certain chemical production process comes with a high risk of explosions. When calcualting the
NPV of this project, do we need to increase the discount rate to adjust for this risk? It is diversified.
So you should NO INCREASE DISCOUNT RATE

Which of the following terms design the risk requiring a risk premium? Systematic risk, market risk
After one year, an investment will pay out a cash flow of 110 or a cash flow of 0, both with a
probability of 50%. If you want to achieve an expected return of 10%, what is the maximum amount
you should pay for this investment? 50

50%*110 + 50%*0= 55

55/1+0.10= 50

After one year, an investment will pay out a cash flow of 110 or a cash flow of 0, both with a
probability of 50%. If you buy this investment for a price of 100 what is the return in case of success?
(answer in percent but without the precentage sign, add "-" for negative returns)

110/50 -1 = 60/50 = 1,2 or 120%

After one year, an investment will pay out a cash flow of 110 or a cash flow of 0, both with a
probability of 50%. If you buy this investment for a price of 100 what is the return in case of failure?
(answer in percent but without the precentage sign, add "-" for negative returns) -100%

After one year, an investment will pay out a cash flow of 110 with a probability of 40% or a cash flow
of 0, with a probability of 60%. If you want to achieve an expected return of 10%, what is the
maximum amount you should pay for this investment? 40

Company A's shares have a value of 100. After company B makes a takeover offer for a price of
130/share, the price increases to 120. What is the probability that the market assigns to the takeover
succeeding?

66%

100(1-p) +p 130 = 120

It is 20%

The correct is to sell the stock.

Gold mine

Pharmaceuticals

Construction machine, are very volatile, cyclical investment

Retail

Also the first one?

First one

65% the formula is rf + Beta mkt premium + B sml SML + Bhml HML = 0% + 1 * 5% + 0.5 * 3% + 0 *4%
= 6.5

LEZIONE 3 BOND PRICING

The 1st promised return

And the last one

104,5

Future cash flow is 115 discounted at 1.1

115/1.1= 104.5
The last one

Spread
Risk premium

The first one

Is an increase in a bond's yield good or a bad for the bond's current owner? Bad if the yield goes up
the prize goes down.
The highest dopo il 2019 la punta piu alta.

Did the graph in the previous question show the bond's clean or dirty price? Clean

The clean price is: always lower or equal than the dirty price

The third one

A bond has a coupon of 8% and the last annual coupon has been paid out 3 months ago. What is the
bond's accrued interest? 2 is the answer

A bond is quoted at a clean price of 104. The coupon is 8% and the last coupon has been paid out 3
month ago. How much do you have to pay for this bond? 106

U S corporate bonds have

WOPCLAP

A company pays a perpetual dividend of 5 per year. What is the present value of dividends if the
discount factor (=return required by shareholders) is 5%? 100

A company pays a dividend of 10 that will increase at a constant rate of 2% per year. The
discount rate (=return required by shareholders) is 10%. By how much should we expect the
stock price to go up every year? (Enter Nr without percent sign)? 2%

A company pays a dividend of 10 that will increase at a constant rate of 2% per year. The
discount rate (=return required by shareholders) is 10%. What will be the stock's expected
dividend yield ? (Enter Nr without percent sign)? 8%

A company has earnings per share of 2 and a stock price of 40. What is the company's Price
Earnings Ratio ? (Nr without percent sign)? 20

A company has earnings per share of 2 and a stock price of 40. What is the company's "earnings
yield" ? (Nr without percent sign)? 5

A company has earnings of 100million and a market cap of 2 billion. What is the company's price
earnings ratio? 20

The two companies A and B are in the same industry. A has a higher PE ratio than B. What are
likely the fundamental reasons? (Choose only one answer) A is growing at a stronger rate than B

A company claims that its growth rate will be 15% in the long run. However, the company has a
ROE of 8% and pays out 50% of its earnings as dividends. Please estimate the perpetual growth
rate using the sustainable growth formula. (Enter the result in percent but without the
percentage sign)? 4

The Free Cash Flow to Equity can be calculated as? (EBIT- interest)(1-tax rate) + D&A - change
in WC - Capex + change in Debt

WOOCLAP

A company has 50million in debt and 50million in equity (both at market values). The company pays
no taxes, the cost of equity is 15% and the cost of debt is 5%. What is the company's WACC?

ChatGPT

The Weighted Average Cost of Capital (WACC) is calculated using the formula:

WACC=

V E ×Re+ V D ×Rd×(1−Tc)

Where:

E is the market value of equity,

D is the market value of debt,

V is the total market value of the firm's equity and debt,

Re is the cost of equity,

Rd is the cost of debt

Tc is the corporate tax rate (which is 0 in this case since the company pays no taxes).

Given that the company has $50 million in debt and $50 million in equity, the total market value (V)
is $100 million.

50

100

0.15

50

100

0.05

WACC=

100

50

×0.15+

100

50

×0.05×(1−0)

0.075

0.025
WACC=0.075+0.025

0.1

WACC=0.1

So, the company's Weighted Average Cost of Capital (WACC) is 10%.

User

A company has 50million in debt with a cost of debt of 5% (and no risk). The company produces a
constant Free Cash to the Firm of 10million/year. What is the company's cash to debt per year, if the
debt level is maintained at 50million forever?

ChatGPT

The cash to debt ratio is a measure of a company's ability to generate enough cash to cover its debt
obligations. It is calculated by dividing the free cash flow to the firm (FCFF) by the total debt.

In this case, the company's free cash flow to the firm (FCFF) is $10 million per year, and the debt is
$50 million. The formula for the cash to debt ratio per year is:

Cash to Debt Ratio

= FCFF

Debt

Cash to Debt Ratio=

Debt

FCFF

Cash to Debt Ratio

10

50

Cash to Debt Ratio=

50

10

Cash to Debt Ratio

0.2

Cash to Debt Ratio=0.2

So, the company's cash to debt ratio per year is 0.2 or 20%. This means that the company generates
enough free cash flow to cover 20% of its total debt each year.

User

Given that the cash to debt is 2.5 million/year, and the cost of debt 5% what is the market value of
the compa

ny's debt?

ChatGPT

The market value of the company's debt can be calculated using the formula for the value of a
perpetuity:

Debt Value

Cash to Debt Ratio

Cost of Debt

Debt Value=

Cost of Debt

Cash to Debt Ratio

In this case, the cash to debt ratio is $2.5 million/year, and the cost of debt is 5%.

Debt Value

2.5

0.05

Debt Value=

0.05

2.5

Debt Value

50

Debt Value=50

So, the market value of the company's debt is $50 million.

User

ChatGPT

The Free Cash to Equity (FCFE) is calculated by subtracting the net debt repayment from the Free
Cash Flow to the Firm (FCFF). The net debt repayment is the difference between the cash to debt and
the free cash flow to the firm.

FCFE

FCFF

Net Debt Repayment

FCFE=FCFF−Net Debt Repayment

In this case, the FCFF is $10 million, and the cash to debt is $2.5 million/year.

\text{Net Debt Repayment} = \text{Cash to Debt} = $2.5 \text{ million/year}

\text{FCFE} = $10 \text{ million} - $2.5 \text{ million/year}

\text{FCFE} = $7.5 \text{ million/year}

So, the Free Cash to Equity is $7.5 million per year.

User

With a Free Cash to Equity of 7.5 and a cost of equity of 15%, what is the comapny's market value of
equity? ?

ChatGPT

The market value of equity can be calculated using the Gordon Growth Model, which is expressed as:

Market Value of Equity

FCFE

Cost of Equity - Growth Rate

Market Value of Equity=

Cost of Equity−Growth Rate

FCFE

In this case, the Free Cash to Equity (FCFE) is $7.5 million/year, and the cost of equity is 15%. Since
we don't have information about the growth rate, let's assume a zero growth rate for simplicity.

Market Value of Equity

= 7.5
0.15

Market Value of Equity=

0.15−0

7.5

Market Value of Equity

=7.5

0.15

Market Value of Equity= 0.15

7.5

Market Value of Equity = 50

Market Value of Equity=50

So, the company's market value of equity is $50 million.

Given that the Free Cash to the Firm is 10 and the cash to debt is 2.5 million/year, what is the Free
Cash to Equity?

Given that the Free Cash to the Firm is 10 and the cash to debt is 2.5 million/year, what is the Free
Cash to Equity? 7.5

With a Free Cash to Equity of 7.5 and a cost of equity of 15%, what is the comapny's market value of
equity? 50

A startup faces an important lawsuit which could destroy its entire business. This will happen with
probability of 10% in which case the company produces no cash flows. With probability of 90% the
company will win the lawsuit and can then be sold for 122,22 million at the end of the year. What is
the expected free cash flow to the firm? (in millions rounded to 2 decimals)? 110

The startup from the previous question has debt with an interest rate of 16,666%. What is the
expected loss rate on this comapny's debt? 11.66

The startup from the previous question has debt with an interest rate of 16,666%. The risk free rate
is 3%. What is the interest rate spread on this company's debt?13.66

If the company has 50 million in debt with an interest rate of 16,666%, what will be the cash to
equity in case of success, i.e. if the firm is sold for 122,222? 122 – (50*1+16.6%) = 63.88

if the shareholders receive 63,88 with a probability of 90% nd the cost of equity is 15%, what is the
value of the equity? 63.88*90%/(1+15%) = 50

Can you now re-evaluate the entire firm by discounting the expected Free Cash to the Firm at WACC?
1100
4 Bond Pricing
The yield of a bond is 1,3,5

1. the bond's promised return

2. the bond's expected return
3. the highest return you can make on this bond if you hold it to maturity
4. the coupon rate divided by the current price of the bond
5. the discount rate that gives you the current price if you discount the bond's future promised
cash flows

The yield of a bond with a one year maturity and a 15% coupon is 10%. What is the bond's price?
1

1. 104,5
2. 99,3
3. 110,7

The price of a bond with a one year maturity and a 15% coupon is 95%. What is the bond's yield?
1

1. 21,1%
2. 14,3%
3. 9,8%

The difference between the yield and the risk free return is called 3

1. the risk premium

2. the expected loss rate
3. the spread

The difference between the expected return and the risk free rate is called 1

1. the risk premium

2. the expected loss rate
3. the spread

The difference between the bond's yield and it's expected return is 1

1. the expected loss rate

2. the spread
3. the risk premium

Is an increase in a bond's yield good or a bad for the bond's current owner? 2

1. Good
2. Bad

Did the graph in the previous question show the bond's clean or dirty price? 1

1. Clean
2. Dirty

The clean price is 1

 1. always lower or equal than the dirty price
2. always higher or equal than the dirty price

If a bond's coupon rate is higher than its yield 2

1. the bond's dirty price is normally lower than it's face value
2. the bond's clean price is normally higher than it's face value
3. the bond's dirty price is normally higher than it's face value
4. bond's clean price is normally lower than it's face value

A bond has a coupon of 8% and the last annual coupon has been paid out 3 months ago. What is the
bond's accrued interest? 2

A bond is quoted at a clean price of 104. The coupon is 8% and the last coupon has been paid out 3
month ago. How much do you have to pay for this bond? 106

US corporate bonds have 2

1. annual coupon payments

2. semi-annual coupon payments

5 Equity Valuation
A company pays a perpetual dividend of 5 per year. What is the present value of dividends if the
discount factor (=return required by shareholders) is 5% 100

A company pays a dividend of 10 that will increase at a constant rate of 2% per year. The discount
rate (=return required by shareholders) is 10%. By how much should we expect the stock price to go
up every year? (Enter Nr without percent sign) 2

A company pays a dividend of 10 that will increase at a constant rate of 2% per year. The discount
rate (=return required by shareholders) is 10%. What will be the stock's expected dividend yield ?
(Enter Nr without percent sign) 8

A company has earnings per share of 2 and a stock price of 40. What is the company's Price Earnings
Ratio ? (Nr without percent sign) 20

A company has earnings per share of 2 and a stock price of 40. What is the company's "earnings
yield" ? (Nr without percent sign) 5

A company has earnings of 100million and a market cap of 2 billion. What is the company's price
earnings ratio? 20

The two companies A and B are in the same industry. A has a higher PE ratio than B. What are likely
the fundamental reasons? (Choose only one answer) 2

1. A is undervalued by the market

2. A is growing at a stronger rate than B
3. A is riskier than B
4. A and B are in a different countries

A company claims that its growth rate will be 15% in the long run. However, the company has a ROE
of 8% and pays out 50% of its earnings as dividends. Please estimate the perpetual growth rate using
the sustainable growth formula. (Enter the result in percent but without the percentage sign) 4
The Free Cash Flow to Equity can be calculated as 3

1. (EBIT- interest)(1-tax rate) + interest + D&A -change in WC - Capex

2. (EBIT- interest)(1-tax rate) + interest + D&A -change in WC - Capex + change in Debt
3. EBIT(1-tax rate) + D&A -change in WC - Capex
4. (EBIT- interest)(1-tax rate) + D&A - change in WC - Capex + change in Debt

To calculate WACC we should use 2

1. The book value of debt The market value of debt

2. The face value of debt

The appropriate value for the cost of debt in the WACC formula is best determined as 2,6

1. The yield of the company's bonds

2. The risk free rate plus an appropriate risk premium
3. The interest rate on the company's bank loans
4. The coupon rate of the company's bonds
5. The expected return on the company's bonds minus the expected loss rate
6. The yield of the company’s bonds minus the expected loss rate

6 Firm Valuation

A company has 50million in debt and 50million in equity (both at market values). The company pays
no taxes, the cost of equity is 15% and the cost of debt is 5%. What is the company's WACC? 10

A company has 50million in debt and 50million in equity (both at market values). The company pays
no taxes, the cost of equity is 15% and the cost of debt is 5%. The company produces a constant Free
Cash to the Firm of 10million/year. What is the company's enterprise value? (In millions) 100

A company has 50million in debt with a cost of debt of 5% (and no risk). The company produces a
constant Free Cash to the Firm of 10million/year. What is the company's cash to debt per year, if the
debt level is maintained at 50million forever? 2,5

Given that the cash to debt is 2.5 million/year, and the cost of debt 5% what is the market value of
the company's debt? 50

Given that the Free Cash to the Firm is 10 and the cash to debt is 2.5 million/year, what is the Free
Cash to Equity? 7,5

With a Free Cash to Equity of 7.5 and a cost of equity of 15%, what is the company’s market value of
equity? 50

A start-up faces an important lawsuit, which could destroy its entire business. This will happen with
probability of 10% in which case the company produces no cash flows. With probability of 90%, the
company will win the lawsuit and can then be sold for 122,22 million at the end of the year. What is
the expected free cash flow to the firm? (In millions rounded to 2 decimals) 10
The start-up from the previous question has debt with an interest rate of 16,666%. What is the
expected loss rate on this company’s debt? 11,666

The start-up from the previous question has debt with an interest rate of 16,666%. What is the
expected loss rate on this company’s debt? 11,666

The start-up from the previous question has debt with an interest rate of 16,666%. The risk free rate
is 3%. What is the interest rate spread on this company's debt? 13,666

The start-up from the previous question has debt with an interest rate of 16,666%. The risk free rate
is 3%. What is the risk premium on this company's debt? 2

If the company has 50 million in debt with an interest rate of 16,666%, what will be the cash to
equity in case of success, i.e. if the firm is sold for 122,222? 63,89

If the shareholders receive 63,88 with a probability of 90% and the cost of equity is 15%, what is the
value of the equity? 50

Can you now re-evaluate the entire firm by discounting the expected Free Cash to the Firm at WACC?
100