Professional Documents
Culture Documents
28.04.2013
4. International Harmonization and Standardization 5. Organizational Design of International Corporations 6. Organizational Integration of the Finance Function 7. Corporate Governance and Ethics
2. Corporate Finance 1. Basic of Investment Criteria: Net present Value, IRR 2. Long-term Finance: equity finance, debt finance, leasing 3. Economic Value Add (EVA) 4. Weighted Average Cost of Capital (WACC) 5. Venture Capital, IPO, 6. Stocks and Stock Evaluation
3. Cash Planning & Liquidity Management 1. Cash Flow Management 2. Working Capital Management 3. Finance Analysis and Planning 4. Lifecycle Costing 4. Managerial Accounting (Controlling) 1. Overview 2. Product Costing Methods a. Process Costing b. Activity-based Costing c. Job-Order Costing 3. Project Controlling 4. Value Chain Controlling 5. Profit Center Reporting 6. Segment Reporting 7. Transfer Pricing 5. Risk Management 1. Defining Risk 2. Types of Risk 3. Portfolio Theory and the Capital Asset pricing Model (CAPM) 4. Risk Management
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28.04.2013
Assume:
Tc = 30% r0 = 11.32% (cost of unlevered equity) rd = 10% EBIT = $145,500 per year in perpetuity (operating cash flow)
Prof. Katarina Adam
28.04.2013
Balance Sheet (Book Net Working Capital Fixed Assets Total assets
Value, thousands) 150 250 Debt 750 650 Equity 900 900 Total liabilities
28.04.2013
Assume MM Theory
VL
VU
TC D
TC D
.30 250 ,000 75,000
So the Value of Celebrities Travel Service Ventures increases by $75,000 due to the debt tax shield and this increase is added to the equity value of the firm.
Prof. Katarina Adam
28.04.2013
Balance Sheet (Market Value, Net Working Capital 150 Fixed Assets 825 Total assets 975
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(or project)? What is the value of any and all additional side effects to financing?
28.04.2013
= (EBIT)(1 - Tc )/r0
= [(145,500) (1 - .3)]/.1132
= $900.000
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= .30 ($250,000)
= $75,000
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28.04.2013
Adjusted Present Value of the firm is = NPV (under all-equity financing) + Present Value of financing effects = $900,000 + $75,000 = $975,000
Prof. Katarina Adam
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WACC
D (1 Tc ) V
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rD
E V
rE
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WACC
D (1 Tc ) V
rD
E V
rE
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Value
PV of Financing Effects
t 0
where UCF is the after-tax cash flow to unlevered equity and r0 is the required return on unlevered equity.
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LCFt (1 rE ) t
where LCF is the after-tax (and after interest) cash flow to levered equity and r is the required return on levered equity.
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ATCFt t ( 1 WACC ) 0
where ATCF is the after-tax cash flow to both debt and (levered) equity and WACC is the weighted-average cost of capital.
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approximately constant for the firm (or the life of the project)
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