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【正文】 o. ? If cash flows and firm value are sensitive to changes in the dollar, the firm should ? figure out which currency its cash flows are in。 ? and issued some debt in that currency Aswath Damodaran 39 Regression Results ? Regressing changes in firm value against changes in the dollar over this period yields the following regression – Change in Firm Value = (Change in Dollar) () () ? Conclusion: Disney’s value is sensitive to exchange rate changes, decreasing as the dollar strengthens. ? Regressing changes in operating cash flow against changes in the dollar over this period yields the following regression – Change in Operating Ine = ( Change in Dollar) () () Conclusion: Disney’s operating ine is also impacted by the dollar. A stronger dollar seems to hurt operating ine. Aswath Damodaran 40 IV. Sensitivity to Inflation ? How sensitive is the firm’s value and operating ine to changes in the inflation rate? ? The answer to this question is important, because ? it provides a measure of whether cash flows are positively or negatively impacted by inflation. ? it then helps in the design of debt。 whether the debt should be fixed or floating rate debt. ? If cash flows move with inflation, increasing (decreasing) as inflation increases (decreases), the debt should have a larger floating rate ponent. Aswath Damodaran 41 Regression Results ? Regressing changes in firm value against changes in inflation over this period yields the following regression – Change in Firm Value = + (Change in Inflation Rate) () () Conclusion: Disney’s firm value does seem to increase with inflation, but not by much (statistical significance is low) ? Regressing changes in operating cash flow against changes in inflation over this period yields the following regression – Change in Operating Ine = + ( Change in Inflation Rate) () () Conclusion: Disney’s operating ine seems to increase in periods when inflation increases, suggesting that Disney does have pricing power. Aswath Damodaran 42 Summarizing… ? Looking at the four macroeconomic regressions, we would conclude that ? Disney’s assets collectively have a duration of about 3 years ? Disney is increasingly affected by economic cycles ? Disney is hurt by a stronger dollar ? Disney’s operating ine tends to move with inflation ? All of the regression coefficients have substantial standard errors associated with them. One way to reduce the error (a la bottom up betas) is to use sectorwide averages for each of the coefficients. Aswath Damodaran 43 Bottomup Estimates These weights reflect the estimated values of the businesses Aswath Damodaran 44 Remendations for Disney ? The debt issued should be long term and should have duration of about 5 years. ? A significant portion of the debt should be floating rate debt, reflecting Disney’s capacity to pass inflation through to its customers and the fact that operating ine tends to increase as interest rates go up. ? Given Disney’s sensitivity to a stronger dollar, a portion of the debt should be in foreign currencies. The specific currency used and the magnitude of the foreign currency debt should reflect where Disney makes its revenues. Based upon 2020 numbers at least, this would indicate that about 20% of the debt should be in Euros and about 10% of the debt in Japanese Yen reflecting Disney’s larger exposures in Europe and Asia. As its broadcasting businesses expand into Latin America, it may want to consider using either Mexican Peso or Brazilian Real debt as well. Aswath Damodaran 45 Analyzing Disney’s Current Debt ? Disney has $16 billion in debt with a facevalue weighted average maturity of years. Allowing for the fact that the maturity of debt is higher than the duration, this would indicate that Disney’s debt is of the right maturity. ? Of the debt, about 10% is yen denominated debt but the rest is in US dollars. Based on our analysis, we would suggest that Disney increase its proportion of debt in other currencies to about 20% in Euros and about 5% in Chinese Yuan. ? Disney has no convertible debt and about 24% of its debt is floating rate debt, which is appropriate given its status as a mature pany with significant pricing power. In fact, we would argue for increasing the floating rate portion of the debt to about 40%. Aswath Damodaran 46 Adjusting Debt at Disney ? It can swap some of its existing fixed rate, dollar debt for floating rate, foreign currency debt. Given Disney’s standing in financial markets and its large market capitalization, this should not be difficult to do. ? If Disney is planning new debt issues, either to get to a higher debt ratio or to fund new investments, it can use primarily floating rate, foreign currency debt to fund these new investments. Although it may be mismatching the funding on these investments, its debt matching will bee better at the pany level. Aswath Damodaran 47 Debt Design for other firms..