Morgan Stanley Investment Banking Pitch Book
Project Roosevelt
Cost of equity "floor" in Mid and
High WACC estimates based
on cost of preferred equity
.
• Unquantified execution risks
- Assumes 20% preferred
equity can be refinanced at
between 10% (low WACC)
and 15% (high WACC) for
forecast period
• Monroe's weighted average
cost of capital not adjusted to
tax-affect the cost of debt due
to NOL tax shield
Morgan Stanley
MONROE VALUATION
3(a) Discounted Unlevered Cash Flow Analysis - Inputs
Weighted Average Cost of Capital
Monroe WACC Analysis: CAPM Method
Assumption
Risk Free Rate (R₂)
Predicted Beta
Market Risk Premium (MRP)
Cost of Equity (K₂)
Pre-tax Cost of Debt (KD)
Post-tax Cost of Debt (Kg)
Cost of Preferred (K₂)
Debt/Total Capitalization
Weighted Average Cost of
Capital (WACC)
Notes
Interpolated 15-year risk free rate (¹)
U.S. Local Predicted Beta per Barra
Morgan Stanley estimated market risk premium
Calculated using the Capital Asset Pricing Model
Blended rate based expected current capital structure (3)
Based on expected capital structure (3)
K₂ *E/(D+E+P) + K, *(1-1) * D/(D+E+P)
+ K, *(1-1) D/(D+E+P)
Low
2.1%
1.62
6.0%
11.8%
5.8%
5.8%
10.0%
91.3%
Strictly Confidential
7.2%
Mid
12.5%
5.8%
5.8%
12.5%
91.3%
7.7%
High
15.0%
5.8%
5.8%
15.0%
91.3%
8.5%
Notes
1. Represents average remaining term of managements contracts for Monroe; yield of 15-year treasury obtained by interpolating the geometric midpoint of the spot rate between the 10-year
and 20-year treasury
2. Per Capital IQ (Long-Term US Predicted Beta)
3. Company capital structure at 3/31/2016 adjusting for debt yield maintenance paydown in Feb. 2016
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