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Bow Tie Company

Bow Tie Company. BTC. Project. EBIT €20m # shares 200,000 Tax Rate 40% Beta 1.20. Cost €40m ∆ EBIT €10m. Riskfree rate: 5% Market risk premium: 6%. BTC EBIT (1- T C ) 12m r A (= 5+6*1.2) 12.20% V U 98.36m. Project Base-case NPV ∆ EBIT(1-T C ) 6m

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Bow Tie Company

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  1. Bow Tie Company BTC Project EBIT €20m # shares 200,000 Tax Rate 40% Beta 1.20 Cost €40m ∆EBIT €10m Riskfree rate: 5% Market risk premium: 6%

  2. BTC EBIT(1-TC) 12m rA(= 5+6*1.2) 12.20% VU 98.36m Project Base-case NPV ∆EBIT(1-TC) 6m NPV= -40+6/0.12 9.18m Valuing the company and the project BTC with project – all-equityValue of Assets 147.54m Equity 147.54(= 98.36 + 9.18 + 40)Expected return on equity rA = 12.20% BTC with project – Debt =40APV = Base-case NPV + TCD = 9.18 + 16 = 25.18Value of Assets 147.54m Equity 123.54PV(Tax Shield) 16 Debt 40Value of company 163.54m 163.54 Expected return on equity rE = 13.20% L=D/V = 24.46%WACC = 11.01%

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