Case Analysis: American Home Products Corporation_商科男_新浪博客 10/10/19, 16(51

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Hypothetical Calculation of the Impact of Capital Structure on Securities Valuation

Pro Forma 1981 for

f
1 Debt in Capital Structure (%) Actual 1981 30% Debt to 50% Debt to 70% Debt to
Total Capital Total Capital Total Capital

2 Earnings Before Interest & Tax, 954.8 922.2 922.2 922.2

EBIT

3 Interest 2.3 52.7 87.8 122.9

4 Profit Before Tax, PBT 952.5 869.5 834.4 799.3

35 5 Taxes 455.2 417.4 400.5 383.7

60,454 6 Profit after Tax, PAT 497.3 452.1 433.9 415.6
9
7 Dividends, DIV 295.7 271.4 260.5 249.5
1
0 8 Total Payments to Security Holders 298 324.1 348.3 372.4

(line3+line7)

9 Required Return on Debt 16.55% 14.01% 14.01% 14.00%

Capital,Kd (cost of Debt Capital)

10 Required Return on Equity 6.34% 6.35% 6.35% 6.35%

Capital,Ke (cost of Equity Capital)
q q
11 Market Value of Debt, Vd, 13.9 376.1 626.8 877.6

(line 3÷line9)
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12 Market Value of Equity, Ve, 4665 4273 4102 3928

(line 7÷line 10)

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13 Market Value of firm,Vf, 4678.9 4649 4728 4806
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(line 11+line 12)
b 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

k v 16 Book Value of Firm, BVf, 1486.7 1253.7 1253.7 1253.7

h (line 14+line 15

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Case Analysis: American Home Products Corporation_商科男_新浪博客 10/10/19, 16(51

myg 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

k
P($)(line 12÷line 19)

21 Earnings per Share of Common 3.20 3.33 3.41 3.50

s
Stock, EPS($)(line 6÷line 19)

22 PE Ratio 9.38 9.45 9.45 9.45

3 v (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%

n11 (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)

179.00 358

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Case Analysis: American Home Products Corporation_商科男_新浪博客 10/10/19, 16(51

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