1st ICAI 2020

International Conference on Automotive Industry 2020

Mladá Boleslav, Czech Republic

(2)

To assess the cost of debt (r D ) we use the product of effective tax rate (t ef ) and the share of interest paid and non-current liabilities and loans. (3)

(4)

For the r E estimation, we use the Capital Asset Pricing Model (CAPM) based on Damodaran’s data files for the time period in question (http://people.stern.nyu.edu/ adamodar/). Cost of equity is the return that shareholders require for investing in a business. It equals to the sum of the risk-free rate (r f ) and premium expected for risk. Risk premium is a product of levered industry beta ( β L ) and the current risk premium for a mature equity market (ERP AAA ). To reflect the country risk we add country risk premium (CRP Rating ) which is a product of Moody’s Rating-based Default Spread and relative equity market volatility. (5) Unlevered industry beta ( β U ) is determined as a weighted average of unlevered beta of the auto and truck industry and the auto parts industry in the region of Western Europe according to Damodaran’s data for the time period in question. To compute levered beta ( β L ) we apply the conventional approach, according to which beta of equity can be written as a function of the unlevered beta and the debt-equity ratio: (6) Rappaport (1999) In. Mařík a kol. (2018) identifies seven key financial value drivers that determine financial performance of a company: sales and their growth, operating profit margin, working capital investments, fixed capital investments, cost of capital (discount rate), capital structure and value growth duration. The following pyramidal breakdown of EVA (see Figure 1) depicts how these value drivers influence the top criteria and the value creation of a company.

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