Corporate Bridge Group

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TRADING PURPOSES. No responsibility is accepted by the Corporate Bridge Group.
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ts covered in
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Cost of Debt
Synthetic rating
EBIT 2007
Interest exp
EBIT/Int exp
High Market Cap firms
Interest Coverage
Ratio
> 8.5
6.50 -8.50
5.50 - 6.50
4.25 - 5.50
3.00 - 4.25
2.50 -3.00
2.00 - 2.50
1.75 - 2.00
1.50 - 1.75
1.25 - 1.50
0.80 - 1.25
0.65 - 0.80
0.20 - 0.65
< 0.20
Default Spread
Risk Free Rate
Cost of Debt
After tax cost of debt

50
15
3.3x

Rating
AAA
AA
A+
A
ABBB
BB
B+
B
BCCC
CC
C
D

Low Market Cap Firms

Interest Coverage
Ratio
> 12.50
9.50 - 12.50
7.50 - 9.50
6.00 - 7.50
4.50 - 6.00
3.50 - 4.50
3.00 - 3.50
2.50 - 3.00
2.00 - 2.50
1.50 - 2.00
1.25 - 1.50
0.80 - 1.25
0.50 - 0.80
< 0.50

Spread
0.75%
1.00%
1.50%
1.80%
2.00%
2.25%
3.50%
4.75%
6.50%
8.00%
10.00%
11.50%
12.70%
14.00%

3.50%
5.00%
8.50%
5.70%

Cost of Equity

Company
Comp 1
Comp 2
Comp 3
Comp 4
Comp 5

Levered Beta

D/E
Ratio

Effective
tax rate %

Unlevered beta

1.14
0.98
1.18
0.85
1.31

0.40
1.30
1.87
0.99
0.67

30.7%
30.0%
32.0%
22.7%
10.3%

0.89
0.51
0.52
0.48
0.82

Rating
AAA
AA
A+
A
ABBB
BB
B+
B
BCCC
CC
C
D

Comp 6
Comp 7
Comp 8
Mean
Median

1.25
0.78
1.09
1.07
1.12

Beta of ABC company

Unlevered Beta
Debt/Equity
Tax rate
Levered beta of ABC

0.60
0.48
33.0%
0.79

Debt/ Debt + Equity

Equity/ Debt + Equity

0.33
0.67

1.35
1.03
0.97
1.07
1.01

9.6%
10.8%
18.0%
0.21
0.20

0.56
0.41
0.61
0.60
0.54

WACC of ABC company

Risk Free rate
Market risk premium
Levered beta of ABC
Cost of equity
Pre-tax cost of debt
Tax rate
After tax cost of debt
WACC

4.50%
5.00%
0.79
8.47%
8.50%
33.00%
5.70%
7.57%

Scenario Analysis

Debt to Equity

Equity beta at various unlevered beta and capital structure

Unlevered Beta
0.79
0.4
0.6
0.8
1
1.2

0.40
0.51
0.56
0.61
0.67
0.72

0.50
0.63
0.70
0.77
0.84
0.90

0.60
0.76
0.84
0.92
1.00
1.08

Debt to Equity

WACC at various unlevered beta and capital structure

Unlevered Beta
0.08
0.4
0.6
0.8
1
1.2

0.40
6.60%
6.78%
6.96%
7.14%
7.32%

0.50
7.03%
7.25%
7.48%
7.70%
7.93%

0.60
7.45%
7.72%
8.00%
8.27%
8.54%

Spread
0.75%
1.00%
1.50%
1.80%
2.00%
2.25%
3.50%
4.75%
6.50%
8.00%
10.00%
11.50%
12.70%
14.00%

d Beta
0.70
0.89
0.98
1.08
1.17
1.26

0.80
1.01
1.12
1.23
1.34
1.44

d Beta
0.70
7.88%
8.20%
8.51%
8.83%
9.15%

0.80
8.31%
8.67%
9.03%
9.39%
9.75%