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Cost of Debt Capital for DCF Valuation of Businesses in the Czech Republic
Podškubka, Tomáš ; Marek, Petr (advisor) ; Mařík, Miloš (referee) ; Šebestíková, Viola (referee)
This dissertation thesis deals with estimation of the cost of debt that is applied for DCF valuation of businesses in the specific environment of the Czech Republic. Neither theory nor practice has focused on this issue in detail. There is no systematic and comprehensive list of the cost of debt estimation methods usable in practice. Valuers and analysts disregard estimation of the cost of debt arguing that it can be easily estimated from the current bank loan interest rates or from the traded bonds. Neither method is perfect and fully applicable in the Czech Republic. This dissertation thesis shows how the DCF value of an enterprise is shaped by the cost of debt. Almost all formulas analysed caused the value of an enterprise to change with the cost of debt, which makes the estimation of the cost of debt very important. Further, based on an analysis of 183 valuation reports, the thesis documents the practice of the cost of capital estimation in the Czech Republic. It shows that while the cost of equity is mainly estimated in compliance with theory, estimation of the cost of debt is done by simple and sometimes inappropriate methods, because there is no guidance in the literature. Finally, this thesis suggests various methods of the cost of debt estimation that can be used in practice in the Czech Republic. It provides full application guidance to these methods, data that was calculated by the author or taken from other sources and evaluates advantages and disadvantages of these methods. This thesis concludes by recommending methods that should be used for the cost of debt estimation in the Czech Republic as opposed to the simple methods currently used.
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