Principles of Corporate Finance

WACC      +  ×      = =  × A D V rE r E V WACC r D ‹ WACC is the traditional view of capital structure, risk and ret ...

WACC .10=rD .20=rE .15=rA BD BA BE Risk Expected Return Equity All assets Debt ...

WACC Example - A firm has $2 mil of debt and 100,000 of outstanding shares at $30 each. If they can borrow at 8% and the stockho ...

WACC Example - A firm has $2 mil of debt and 100,000 of outstanding shares at $30 each. If they can borrow at 8% and the stockho ...

r D V rD rE rE =WACC WACC ...

r D V rD rE WACC WACC (traditional view) ...

r D V rD rE WACC WACC (M&M view) ...

u How Much Should a Firm Borrow? Principles of Corporate Finance Brealey and Myers Sixth Edition Chapter 18 ...

Topics Covered w Corporate Taxes and Value w Corporate and Personal Taxes w Cost of Financial Distress w Pecking Order of Financ ...

Financial Risk - Risk to shareholders resulting from the use of debt. Financial Leverage - Increase in the variability of shareh ...

Example - You own all the equity of Space Babies Diaper Co.. The company has no debt. The company’s annual cash flow is $1,000, ...

Example - You own all the equity of Space Babies Diaper Co.. The company has no debt. The company’s annual cash flow is $1,000, ...

All Equity 1/2 Debt EBIT 1,000 1,000 Interest Pmt 0 100 Pretax Income 1,000 900 Taxes @ 40% 400 360 Net Cash Flow $600 $540 Exam ...

C.S. & Corporate Taxes All Equity 1/2 Debt EBIT 1,000 1,000 Interest Pmt 0 100 Pretax Income 1,000 900 Taxes @ 40% 400 360 N ...

Capital Structure PV of Tax Shield = (assume perpetuity) D x rD x Tc rD = D x Tc ...

Capital Structure PV of Tax Shield = (assume perpetuity) D x rD x Tc rD = D x Tc Example: Tax benefit = 1000 x (.10) x (.40) = $ ...

Capital Structure PV of Tax Shield = (assume perpetuity) D x rD x Tc rD = D x Tc Example: Tax benefit = 1000 x (.10) x (.40) = $ ...

Capital Structure PV of Tax Shield = (assume perpetuity) D x rD x Tc rD = D x Tc Example: Tax benefit = 1000 x (.10) x (.40) = $ ...

Capital Structure Firm Value = Value of All Equity Firm + PV Tax Shield ...

Capital Structure Firm Value = Value of All Equity Firm + PV Tax Shield Example All Equity Value = 600 / .10 = 6,000 ...