Mr. B needs to report to the management of L Group.regarding the value analysis (价值分) of Company Y. As the assistant of Mr.B, you have been required by Mr.B to prepare a draft of the analysis. Mr.B has asked you to follow the following steps in drafting the analysis：(1) what does WACC(加权平均资本成本) stand for and what are the factors that would increase or decrease WACC;(2) calculate the equity value (股权价值)of Company Y with the information provided in Table 6-1;showing the step-by-step calculation process;(3) compare the calculated equity value and the stock price (value is over-or under-estimated (股价) to conclude whether the calculated equity assuming that the stock price represents a fair value);(4) what are the reasons that may cause the over-or under-estimation in equity value.
参考答案：
Answers :
(1) WACC stands for Weighted Average Cost of Capital. It may be affected by the following factors: the interest.rate on the market, market risk premium, tax rate, capital structure, dividend policy and investment policy.
(2) Present value of the forecast period =10×0.8929 +12×0.7972 +14.4×0.7118 +17.28×0.6355 +20.74×0.5674 = Euro 51.49 million
Present value of the terminal cash flow= 20.74×(1+5% )/(12%- 5% ) ×0.5674 =Euro 176.52 million
Enterprise value = 51.49+176. 52 = Euro 228.01 million
Equity value.= 228.01-30 = Euro 198.01 million
(3) Calculated equity value per share =198.01÷10 =19.80 Euro/share
As it is higher than the stock price (15 Euro/share),the calculated equity value is over-estimated.
(4) The over-estimation of the equity value might be a result of the following reasons: over-stated cash flow forecast, over-estimated growth rate for terminal cash flow, a WACC that is too low, under-stated net debt.