Jeff:

I added one small part.  I calculated the NPV of the tax shield given the
50% level and the assumptions in the book.  I used the following formulae:

NPV= (additional debt X .48 (taxes) X .14 (interest rate))/ .05 (riskless 
rate)

I divided by the riskless rate since the shield is not risky and the cash
flows would not occur only if Congress repeals the interest deduction.

About the cash flows.  I may be missing it but I cannot find cash from
operations in the book.  I tried backing it out of net income but there is
not enough information to figure it out using the indirect method.  If you
have the info show me where it is and I will do the calculations.

Good job putting it all together.

Dylan



At 03:17 PM 2/25/01 -0600, Jeff.Dasovich@enron.com wrote:

>Gents:
>Here it is.  Please insert directly any proposed edits using
>strike-out-underline.  Need them no later than 10 AM tomorrow in order to
>have incorporated and ready to go for class tomorrow.  Dylan, just go ahead
>and put your operating cash flow nos. in (and any other changes you have)
>and send on back.  All:  recall that we are limited to 4 pages of text.
>
>Best,
>Jeff
>
>(See attached file: AHP Case DRAFT--0225.doc)
>
>
>
 >
                     Jeff
Dasovich
>                     Sent by: Jeff        To:     Dylan
> Windham
>                     Dasovich             <dwindham@uclink4.berkeley.edu>
 >
                                          cc:
guinney@haas.berkeley.edu,
>                                          JcjCal02@aol.com,
> jdasovic@enron.com,
>                     02/25/2001           Jeff.Dasovich@enron.com,
 >
                     11:57
AM             jjackson@haas.berkeley.edu
>                                          Subject:     Re: AHP
> Case(Document link: Jeff
>                                          Dasovich)
 >



>
>
>Greetings:
>I'm going to finish this up in the next few hours and send out.  Dylan, go
>ahead and calculate using operating cash rather than income and send along
>and I'll incorporate.  I'll try to work Jimmy's stuff in a bit, too.
>
>Best,
>Jeff
>
>
>
 >
                     Dylan
Windham
>                     <dwindham@uclink4.ber        To:
> guinney@haas.berkeley.edu,
>                     keley.edu>                   JcjCal02@aol.com,
> jdasovic@enron.com,
>                                                  Jeff.Dasovich@enron.com,
 >
                     02/22/2001 11:48
PM          jjackson@haas.berkeley.edu
>                                                  cc:
 >
                                                  Subject:     AHP
Case
>
 >

>
>
>
>Jeff:
>
>I just got done ready your memo.  I really liked what you have done.  I did
>
>not want to make any direct changes, but rather just pose a few questions
>for discussion.
>
>First, when I calculated how long it would take to purchase the shares
>without debt I did use the net income number.  It might be better to change
>
>them to the operating cash flow number.  If you guys would like, I can
>recalculate them.
>
>I agree that having higher amounts of debt will fend off take overs.
>
>Are we planing to calculate the amount the tax shield will increase the
>value of the company.  If we assume that the debt will be held in
>perpetuity, we can directly compute the amount.  Let me know and I can run
>the numbers.
>
>Also, Jimmy when you do the color graphs you want to do.  Try some MM pie
>charts (just kidding)
>
>Good job,
>
>Let me know what I can do to help.
>
>Dylan
>
>
>
>
>
>

 - AHP Case DRAFT--0225 dylan.doc