Q1
Undustry Beverage
Region US
Levered Beta 0.76
D/E industry 17.12%
Tax effective 6.68%
Unlevered ** 0.68
Unlevered beta 0.66 approach with taxes
Unlevered beta 0.649 approach without taxes
In this case, the unlevered beta is not exactly the same for damdoran
but the estimation with taxes is closer
Q2
Undustry Beverage
Region US
Levered Beta 0.44
D/E industry 5.29%
Tax effective 12.84%
Unlevered ** 0.42
Unlevered beta 0.4206 approach with taxes
Unlevered beta 0.4179 approach without taxes
** Damodaran estimates the unleverd beta with tax impact
The both the levered and unlevered beta in emerging markets are lower
than in the US
Q3
If you expect a constant D/E ratio, you should use the approach without taxes:
Bu = BL / (1+ D/E)
As you can see in both questions above, this approach results in a lower unlevered beta
Q4: Suspended
Part 2
Q5
Rf rate US-T 10 yr 3.75% as of Sep 27
MRP MMUS 5% (Kroll's latest recommendation)
KO's beta 0.61 source: Yahoo finance. Lower than the US
Cost of equity 6.80% plain CAPM with no size neither value adjus
Part 3
Q6
Mackinsy is oposed to using a country risk premium. Thus, his model for CAPM for a mature or developed market
would be the same:
Rf MMrf probably the 10 yr UST
MRP the market's lates probably between 4.5% to 5%
General model Re = rf + Beta (company)* MRP
Mckinsy follows the bottom up approach to estimate betas in developed markets, and if there is a difference in
currency, it adjustes CAPM for inflation as shown in the PP used for the zoom class
Damodaran: has three approaches with different recommendations:
Approach 3 is not suitable for Pronaca since we cannot estimate Lambda in Ecuador
Q7
Step 1: use the food industry for emerging markets to obtain unlevered beta (using the US beta could be fine as well)
Unlevered beta for the food prosessing industry 0.61
Levering beta through approach w/o taxes and book values for debt and equity
D/V 41.0%
E/V 59.0%
D/E 69.40%
Levered beta 1.033
RF US-T 10 yr 3.75%
MMRP 5%
Mckinsey: Re= 8.920%
Damodaran approach 1:
CRP based on default 9.41%
Approach 1 Damodaran Re= 18.33%
Approach 2 Damodaran Re= 18.64%
Variations:
You could have used the NET DEBT for the ratios instead of total debt, this will lower beta
but would increase WACC
Q8 WACC Pronaca
rd Interest rate payment in 2023 13
Total debt in 2022 181
rd 7.18% approximate but consistent with Pronaca's
marginal tax rate 23% in 2023
RA 10.985% note that I used an average betw
WACC 13.086%
By now you should be aware of how controversial it is to use a CRP. The CRP of 9.41% for Ecuador is higher than the long term
Using this long-term average could render a lower estimate for Damadoran's approaches.
So, this is subjective, you must be ready to defend your case
Q9
Intermediate growth rate 2.00%
long term growth rate 2.00%
FCF 2030 56.73
COC 12.51%
Horizon value at 2029 $ 539.82
Horizon value at 2023 $ 266.13
Intermediate Value $299.75
Chore enterprise value before excess cash $ 565.88
Chore enterprise value w/excess cash $ 595.88
Market Cap $ 528.88
Estimated P/B 1.13
2024 2025
FCF 117 55
Rubrica
Q1 2 points
Q2 2 points
Q3 2 points
Q5 2 points
Q6 2 points
Q7 3 points
Q8 3 points
Q8 4 points cost of equity
without taxes WACC
without taxes
as of Sep 27 source: [Link]
(Kroll's latest recommendation)
ahoo finance. Lower than the US industry beta
M with no size neither value adjustments (Fama French)
or developed market
he 10 yr UST
between 4.5% to 5%
e is a difference in
eta could be fine as well)
Total financial debt (2023) 220 Invested capital (2023) 537 (proxy for net value)
Our assignments 2 and 3. Initial source: EMIS
could appear too low for Ecuador
could appear too high!
extremely high
ate but consistent with Pronaca's cost of funds
note that I used an average between Mckinsey and Damodaran 1 for the estimation of Re
uador is higher than the long term average of 5%
$ 528.88
9.5%
10.0% (43.19)
10.5% #VALUE!
11.0% #VALUE!
11.5% #VALUE!
12.0% #VALUE!
12.5% #VALUE!
13% #VALUE!
13.50% #VALUE!
14% #VALUE!
2026 2027 2027 2028 2029
54 52 54 55 56
3 points depending on decisions and estimation
3 points depending on decision and estimation
(proxy for net value)