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Finance people.. got a question...


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Originally posted by trancerxn112

sup guy?

well i'm working on an M&A case, the Immunex-Amgen merger from a few years ago.. in regards to the WACC of each respective firm I need both after tax and pre-tax measures.. in regards to cost of debt its pretty straight forward, but what i'm at odds about is whether to use each firms unlevered beta in calculating cost of equity since the tax benefit of debt is included in the levered beta... using an unlevered beta would certainly constitute pre-tax, but would also exclude the incremental risk associated with the debt burden...

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Originally posted by dgmodel

oh man... are you having a bad day??? i was joking around... i was being sarcastic in m y initial post...

yea actually.. lol this case is a p.i.t.a cuz my prof is a cock..

and i have to finish this stupid research report for my internship so some douchebag hedge fund manager can end up bringing it to clients and making a lot of money off me.. all while paying me nothing of course :rolleyes:

my bad bro

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Originally posted by PFloyd40

yea actually.. lol this case is a p.i.t.a cuz my prof is a cock..

and i have to finish this stupid research report for my internship so some douchebag hedge fund manager can end up bringing it to clients and making a lot of money off me.. all while paying me nothing of course :rolleyes:

my bad bro

stop looking shortterm.. think big picture... youll eventually be that douchebag who has college kids doing his work for him... so what you put in now, hopefully by karma someone else will put in for you... do not be penny wise and pound foolish...

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Originally posted by dgmodel

stop looking shortterm.. think big picture... youll eventually be that douchebag who has college kids doing his work for him... so what you put in now, hopefully by karma someone else will put in for you... do not be penny wise and pound foolish...

yea i'm trying.. its just been rough..

got final rounds for houlihan though tomorrow.. so hopefully that has a happy ending..

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Originally posted by petp

im not big on corp fin but.....use a leverd beta. to simplify; the more debt u use, the more risk a firm takes on, thus the higher your cost of equity will be (using CAPM).

yea i definetly have to use the levered beta when discounting FCFF b/c its a firm level cash flow and thus uses WACC.. i'm just trying to figure out why he would want pre-tax WACC even as a calcluation period and whether i'd need to use an unlevered beta when calculating it since the tax benefit of debt is considered in the WACC...

the only thing i can come up w/ is that he wants to quantify the tax benefit in terms of percentage gain through decreasing the cost of capital...

damn prof's are always so vague..

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Originally posted by PFloyd40

well i'm working on an M&A case, the Immunex-Amgen merger from a few years ago.. in regards to the WACC of each respective firm I need both after tax and pre-tax measures.. in regards to cost of debt its pretty straight forward, but what i'm at odds about is whether to use each firms unlevered beta in calculating cost of equity since the tax benefit of debt is included in the levered beta... using an unlevered beta would certainly constitute pre-tax, but would also exclude the incremental risk associated with the debt burden...

Simple answer: levered beta. If you need a pre-tax WACC, just assume 0% tax rate for your WACC calculations.

Thus your pretax cost of debt would essentially be the same as the after tax cost of debt (since we're using 0% tax rate).

And your pretax cost of equity would be calculated using this levered beta:

BL = BU * [ 1 + (1-t)*(D/E) ]

and since t would be 0%,

BL = BU * [ 1 + (D/E) ]

[edited for simplicity]

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Originally posted by PFloyd40

well i'm working on an M&A case, the Immunex-Amgen merger from a few years ago.. in regards to the WACC of each respective firm I need both after tax and pre-tax measures.. in regards to cost of debt its pretty straight forward, but what i'm at odds about is whether to use each firms unlevered beta in calculating cost of equity since the tax benefit of debt is included in the levered beta... using an unlevered beta would certainly constitute pre-tax, but would also exclude the incremental risk associated with the debt burden...

i would lean towards levered in that it takes a more accurate measure of risk into account...

can you possibly use the levered beta and adjust it using with Amgen and Immunex's corp tax rates?

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