0D 25D 50D

Book Value of Debt 0 2500 5000

Book Value of Equity 10000 7500 5000

Market Value of Debt 0 2500 5000

Market Value of Equity 10000 8350 6700

Pretax Cost of Debt 0.05 0.05 0.05

After Tax Cost of Debt 0.033 0.033 0.033

Market Value Weights of

Debt 0 0.230414747 0.427350427
Equity 1 0.769585253 0.572649573

Levered Beta 0.8 0.958083832 1.194029851

Risk Free Rate 0.05 0.05 0.05
Market Premium 0.06 0.06 0.06
Cost of Equity 0.098 0.10748503 0.121641791
WACC 9.80% 9.03% 8.38%
EBIT 1485 1485 1485
Tax 34% 504.9 504.9 504.9
EBIAT 980.1 980.1 980.1
Depreciation 500 500 500
Capital Expense -500 -500 -500
Change in Net Working Capital 0 0 0
Free Cash Flow 980.1 980.1 980.1
Value of Firm 10001.02041 10851.10714 11701.19388

Value of Pure Business Flows 10001.02041 10001.02041 10001.02041

Financing Cash Flows

Interest 0 125 250
Tax Reduction 0 42.5 85

Pre Tax Cost of Debt 0.05 0.05 0.05

Value of Financing Effects 0 850 1700

Total Value 10001.02041 10851.02041 11701.02041

 Cash Flow to Creditors:
Interest
Pretax Cost of Debt
Value of Debt (Int/kd)

Cash Flow to Shareholders:

EBIT
Interest
Pretax Profit
Tax 34%
Net Income
Depreciation
Capital Expense
Tax Rate 0.34 Change in Net Working Capital
Debt Amortization
Residual Cash Flow (RCF)
Cost of Equity
Value of Equity (RCF/ke)
Value of equity plus value of debt

Weight to creditors
Weight to shareholders
0D 25D 50D

0 125 250
0.05 0.05 0.05
0 2500 5000

1485 1485 1485

0 125 250
1485 1360 1235
504.9 462.4 419.9
980.1 897.6 815.1
500 500 500
500 500 500
0 0 0
0 0 0
980.1 897.6 815.1
0.098 0.10748503 0.121641791
10001.02041 8350.930362 6700.822086
10001.02041 10850.93036 11700.82209

0.00% 23.04% 42.73%

100.00% 76.96% 57.27%
 0% Debt 25%Debt 50% Debt
100% 50%
Equity 75% Equity Equity
Initial mkt value of equity 10,000 10,000 10,000
PVTS 0 850 1,700
Mkt value of equity
after announcement 10,000 10,850 11,700
Initial # shares 1,000 1,000 1,000
Price per share 10.00 10.85 11.70
after announcement

Cash paid out 0 2,500 5,000

Market value of equity 10,000 8,350 6,700
# of shares repurchased 0 230 427
# shares after repurchase 1,000 770 573
Share price 10.00 10.85 11.70