Design debt (by looking at sensitivity to macro variables)
Originally published: 20/06/2016 12:13
Last version published: 26/03/2018 10:11
Publication number: ELQ-80803-2
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Design debt (by looking at sensitivity to macro variables)

Allows you to estimate the duration of a firm's assets and its sensitivity to other macro economic variables

Description
We are trying to estimate how the cash flows of a firm, and its value change as a function of the changes in macroeconomic variables. This will help us in the design of debt.

Inputs needed: You will need to input operating income, market value of equity and total debt
outstanding each year for the periods, starting with the latest one. If your firm has been listed
for 3 years or less, skip this spreadsheet.

Note: this model is being shared with the authorization of Professor Aswath Damodaran from NYU Stern Business School (www.damodaran.com)

This Best Practice includes
1 Excel Model File

Prof. Aswath Damodaran offers you this Best Practice for free!

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Further information

The objective of this model is to get the following output values, based on Firm Value or based on Operating Income:
- Slope of regression vs Interest rate change
- Duration of the firm's assets
- Cyclicality of firm's assets
- Sensitivity to Inflation
- Sensitivity to Dollar movements

It may be useful in the design of debt.


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