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Unformatted text preview: TVM BONDS STOCKS Capital Budgeting N PVGO = new PV of stock w/ G – old pv of stock Tax Shield = Tax rate*interest paid =T*B* i B if debt is perpetuity then its = T*B CAP ITAL STRUCTURE U CF =ΔCFAT =(SalesCostdepreciation)(1Tax) depreciation = (ΔSΔCΔD)(1T)+ΔD = (ΔSΔC)(1T)+ΔDT LCF = UCFAfter tax interest payments = UCF(1T C)r B B F loating Cost = fc= (FC%)(B) Tax shield = Floating Cost * Tax rate = FC / t *Tc Net Floating Cost = F loating Cost – Tax Shield N PV of loan = B  PV of B(1Tc)(loan interest) (using Rf ) – pv of B (using Rf ) NPV =PV of UCF (use r o for sales and cost use Rf for depreciation ) –Investment – Net Floating Cost Adjusted PV=APV= NPV(using r o) + Tax Benefits = npv +TcB= NPV +NPV of loan I N F LAT IO N (1+Nominal) = (1+Real) x (1+Inflation) RE T UR NS Average accounting rate of return = average net income/average book value of investment Real Rate ≅ Nominal Rate – In f lation Rate cost R ISK Total Risk = Undiversifiable Risk + Diversifiable Risk VAR IANCE VALUE  M ISC
Flow to Equity = F TE = PV of LCF (using rs) –(Initial Investment Borrowed) ...
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This note was uploaded on 01/15/2010 for the course FIN 357 taught by Professor Hadaway during the Fall '06 term at University of Texas at Austin.
 Fall '06
 Hadaway
 Corporate Finance, Debt, Interest, Perpetuity

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