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Sensitivity
OUTLINE
The model now produces a single valuation that you can compare to the accounting value, market value or alternative methods such as adjusted present value or economic profit. On the other hand, the model considers the lenders’ position since it computes the debt service coverage ratios and gearing. If covenants or thresholds were introduced you would find that you could increase the value by increasing the gearing but possibly breach the specimen banking covenants. Alternatively, you could improve the lenders’ security by increasing the proportion of equity capital, although this would worsen returns to equity investors. The available cash flow to ...
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