By Harold Bierman
Compliment for personal Equity"Harold Bierman has mixed a very good mixture of vital rules with genuine case research examples for a greater knowing on a slightly refined finance subject."-Edward M. Dudley, vice chairman & normal Auditor, ABB Americas"The function of non-public fairness businesses in financing buyouts in addition to delivering progress capital has multiplied considerably some time past decade. In a transparent, concise method, Harold Bierman offers a well timed and astute research of the virtues of non-public fairness in addition to inventive quantitative methodologies which are acceptable to real-life transactions. This booklet should still turn into crucial studying for traders, intermediaries, monetary advisors and the administration of personal, nearly inner most, or soon-to-be inner most firms."-James A. Rowan Jr., handling Director, funding BankingLegg Mason wooden Walker, Inc."As the personal fairness asset classification has grown to over $300 billion within the final 3 years, Bierman analyzes the basics in the back of the funding judgements of this more and more vital region. as soon as finishing the e-book, you are going to comprehend the elemental analytical framework underlying inner most fairness investment."-Peter Nolan, companion, Leonard eco-friendly and Partners"In taking a look at the personal fairness area, Professor Bierman has introduced jointly a various staff of metrics and valuation formulation right into a unmarried textual content. The ebook presents a worthy blend of educational conception and real-life case stories. It offers many insights."-Peter H. Vogel, vice chairman, MeadWestvaco company
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Additional info for Private Equity: Transforming Public Stock to Create Value
The percentage is limited by the firm's 32 ______________________________________________ PRIVATE EQUITY prospects (the terminal value), the amount of debt that can be raised, and the costs (required expected returns) of the debt and other common stock investors. The percentage of ownership that is kept by the promoters is the residual results of the requirements of the investors that the promoters are trying to attract. SELLING THE DEAL ______________________ For making capital budgeting decisions the net present value method has several advantages over the use of the IRR method.
In this chapter we limit the choice to either debt or equity. The next calculation is to determine the percentage of equity that must be allocated to the external investors so that the investors can expect to earn the return they require given the alternative returns available, the risks of the enterprise being financed, and the amount of debt (and other senior securities) being issued. It is important to remember that the amount (or value) of equity at the termination date will depend on the amount of debt being used.
In the real world, the dividend is frequently considered to be a firm obligation, and this obligation will affect the amount available for dividends. 20 tax rate on long term capital gains. The Value: One-Period Horizon Assume a firm pays a $1 dividend and the investor nets after tax (1 - tp ) and invests to earn an after tax return of rp so that after one year the investor has: With retention by the corporation of the $ 1 where the corporation earns r and then pays a dividend the investor has: 40 PRIVATE EQUITY There is indifference for dividends and retention if r = rp .