Based on a simplified DCF model DIAWONDS® has estimated the possible impact of a 25bp rate hike on the value of the first 73 companies by market cap., of the S&P500 index, different from financial and insurance companies, which together represent the 50% of the total market cap. of the index itself as at march 14, 2017.
Here are the basic assumptions:
Total free cash flows of the 73 companies: $498.9 B.
WACC: 7.5% (adj. beta: 0.96; risk free: 2.6%; ERP: 6.12%; tax rate: 20.3%)
Annual FCF’s growth expected for the next 10Y: 2.9%
Annual FCF's growth expected beyond 10Y in perpetuity: 2.8%
Total financial debt: $1,828.7 B
Total cash: $938.1 B
Total value of equity: $10,058.5 B
Total market cap. of the 73 companies: $10,893 B
Total value of equity when the WACC is increased by 25bp: $9,508 B, which means a 5.5% reduction in the total value of the 73 companies.
It seems like the market does not bother about what a reduction in value means and instead it keeps going on in its rise.
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