Intrinsic Value
The return on righteousness and the hail of fairness must be determined to calculate the enamor subjective value of PacifiCorp. skirt 1 shows the appropriate intrinsic value of PacifiCorp. I assume the initial investiture of $9.4 jillion is discounted for the 10 year time horizon. During 10 years, the investors will reinvest only the immediate payment conflates into the company, so maintaining the growth of 7.45% each year. The return on equity used for the valuation is the ramble of 7.45% which is the return on PacifiCorp equity on 2005. For the constitute of equity, the capital would be invested in MidAmerican if the company did not take the acquisition. Therefore, I consider the rate of return on MidAmerican on 2004 (5.72%) as the cost of equity of PacifiCorp. Dividing the present value of future cash flows by the cost of the enthronization indicates that every dollar invested buys securities worth $1.18. Value is created.
Table 1 The appropriate intrinsic value of PacifiCorp
Assume:
1.10-year investment horizon, when you liquidate at book or accumulated investment value
2.initial investment is $9.4 billion
3.no dividends are paid, all cash flows are reinvested
4.return on equity = 7.45%
5.cost of equity = 5.
72%
Year 0 1 2 3 4 5 6 7 8 9 10
enthronement or
Book Equity
Value 9.4 10.1 10.9 11.7 12.5 13.5 14.5 15.5 16.7 17.9 19.3
Market Value (or
Intrinsic Value) = exhibit value @ 5.72% of 19.3 = $11.07
Market/Book = $11.07/9.4 = $1.18
Value created: $1.00 invested becomes $1.18 in marketplace value.
Discounted Cash Flow
Appendix 1 shows the discounted cash flow for by-line 15 years. I assume the discount rate is 6% which is the 30-year U.S Treasury bond rate and the expected cash flow growth rate is...If you want to get a encompassing essay, order it on our website: Ordercustompaper.com
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