- Georg Schrempp is the CFO of Bayern Chemicals KgaA, a large German manufacturer of industrial, commercial, and consumer chemical products. Bayern Chemicals is privately owned, and its shares are not listed on an exchange. The CFO has appointed Markus Meier, CFA, of Crystal Clear Valuation Advisors, a third-party valuator, to perform a standalone valuation of Bayern Chemicals. Meier had access to the following information to calculate Bayern ChemicalsĂ˘â‚¬â„˘ weighted average cost of capital:
-The nominal risk-free rate is represented by the yield on the long-term 10-year German bund, which at the valuation date was 4.5 percent.
-The average long-term historical equity risk premium in Germany is assumed at 5.7 percent.
-Bayern ChemicalsĂ˘â‚¬â„˘ corporate tax rate is 38 percent.
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-Bayern ChemicalsĂ˘â‚¬â„˘ target debt-to-equity ratio is 0.7. Bayern is operating at its target debt-to-equity ratio.
-Bayern ChemicalsĂ˘â‚¬â„˘ cost of debt has to be estimated via YTM approach. 10 yearsĂ˘â‚¬â„˘ coupon bond with 1000$ face value and 8% coupon rate paid annually, and it is traded at premium value of 1200.