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Case Analysis: American Home Products Corporation

(2011-05-03 06:26:27)
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american

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分类: CorporateFinanceCaseStudy

Harvard Business School

9-283-065

Rev. January 24, 1989

American Home Products Corporation

 

 

Hypothetical Calculation of the Impact of Capital Structure on Securities Valuation

 

 

 

Pro Forma 1981 for

1

Debt in Capital Structure (%)

Actual 1981

30% Debt to Total Capital

50% Debt to Total Capital

70% Debt to Total Capital

2

Earnings Before Interest & Tax, EBIT

954.8

922.2

922.2

922.2

3

Interest

2.3

52.7

87.8

122.9

4

Profit Before Tax, PBT

952.5

869.5

834.4

799.3

5

Taxes

455.2

417.4

400.5

383.7

6

Profit after Tax, PAT

497.3

452.1

433.9

415.6

7

Dividends, DIV

295.7

271.4

260.5

249.5

8

Total Payments to Security Holders

298

324.1

348.3

372.4

 

(line3+line7)

 

 

 

 

9

Required Return on Debt Capital,Kd (cost of Debt Capital)

16.55%

14.01%

14.01%

14.00%

10

Required Return on Equity Capital,Ke (cost of Equity Capital)

6.34%

6.35%

6.35%

6.35%

11

Market Value of Debt, Vd,

13.9

376.1

626.8

877.6

 

(line 3÷line9)

 

 

 

 

12

Market Value of Equity, Ve,

4665

4273

4102

3928

 

(line 7÷line 10)

 

 

 

 

13

Market Value of firm,Vf,

4678.9

4649

4728

4806

 

(line 11+line 12)

 

 

 

 

14

Book Value of Debt, BVd

13.9

376.1

626.8

877.6

15

Book Value of Equity, BVe

1472.8

877.6

626.9

376.1

16

Book Value of Firm, BVf,

1486.7

1253.7

1253.7

1253.7

 

(line 14+line 15)

 

 

 

 

17

Return on Total Capital

33.40%

38.25%

38.25%

38.25%

 

(EBIT(1-t)÷line 16)

 

 

 

 

18

ROE(line 6÷line 15)

33.77%

51.52%

69.21%

110.50%

19

Number of Shares Outstanding, N

155.5

135.7

127.3

118.9

20

Price per Share of Common Stock,

30

31.49

32.22

33.04

 

P($)(line 12÷line 19)

 

 

 

 

21

Earnings per Share of Common Stock, EPS($)(line 6÷line 19)

3.20

3.33

3.41

3.50

22

PE Ratio

9.38

9.45

9.45

9.45

 

(line 20÷line 21=line 12÷line 6)

9.38065554

9.451974449

9.452871311

9.452343288

23

Book Value Debt Ratio

0.93%

30.00%

50.00%

70.00%

 

(line 14÷line 16)

 

 

 

 

24

Maket Value Debt Ratio,Vd/Vf

0.30%

8.09%

13.26%

18.26%

 

(line 11÷line 13)

 

 

 

 

25

WACC(using market values)

6.36%

10.31%

10.14%

9.98%

26

Free Cash Flow, FCF

496.50

479.54

479.54

479.54

 

(EBIT (1-t) =line 2x (1-48%)

 

 

 

 

27

Market Value of the Firm, Vf

4678.90

4649.34

4728.40

4805.99

 

(line 26÷line25)

 

 

 

 

 

 

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