Two questions in Equity solution, structure

hw0799

1. Example 19 (Reading 41, pg 427, Equity)
Given Vfirm = 17401
Capital structure = 20% Debt : 80% Equity
Long term debt - 1518
=> Vequity?

Book's solution: Vequity = Vfirm - Long term debt = 17401 - 1518=15883

Question: Why not use the Capital structure here (ie: Vequity = Vfirm* 80% = 13,920.8)? Long term debt is just a part of debt, there might be short term debt, ect

2. Example 36 (Reading 42, pg 538, Equity)
Enterprise value = Equity + Debt + Minority Interest - Cash
Why + Minority Interest and - Cash?

zephyranalyst

diediemustpass Wrote:
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> Supersadface, your way of conceptualized the
> enterprise is interesting. Still, if thinking in
> that way, it can only explain the - Cash part, but
> not the Minority Interest, right? Any further
> comment?

Assume you purchased the home with another investor, and they contributed 20% to the deal. So they're entitled to 20% of the cash and the home, or $900,000*.2 = $180,000.

NO EXCUSES

scarecrow

Bravo! It's much easier to learn in this way. Thanks all.



Edited 1 time(s). Last edit at Tuesday, May 11, 2010 at 10:32AM by diediemustpass.

hassan

Supersadface, your way of conceptualized the enterprise is interesting. Still, if thinking in that way, it can only explain the - Cash part, but not the Minority Interest, right? Any further comment?

CPATrader

Cpk123:

Kindly clarify and confirm that the long term debt that is being talked of in the capital structure weights is actually based on PAR value of debt
Whereas market value of debt is the debt directly used to get the value of equity

SeanWest

what is on the balance sheet of the company is the historical value - not market value. .

CP

llxx

2) minority interest is part of equity and cash is reduced bc you would use it to pay down debt once someone took control then they can change the cap structure