Formula sheet - wacc ={B(B S(1 – T C r B{S(B S}r S...

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Formula sheet Basics of Valuation P 0 = Div 1 /(r-g) Balance Sheet: Operating Cash Flow = EBIT + Depreciation – T(EBIT-Interest) = (1-T)EBIT+D+T Interest Total Cash Flow = Operating cash flow -Capital Expenditures – ΔNWC Free Cash Flow (FCF) = Financial cash Flow = Total Cash Flow Capital Structure: MM Prop I – no taxes: V L = V U MM Prop I with taxes: V L = V U + PV(Interest Tax Shields) = V U + BT c , if the debt is fixed and permanent. MM Prop. II - no taxes: r S = r 0 + (B/S)(r 0 – r B ) MM Prop. II with taxes: r S = r 0 + (B/S)(r 0 – r B )(1 – T C ) The weighted average cost of capital: WACC = r
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Unformatted text preview: wacc = {B / (B+S)}(1 – T C ) r B + {S / (B+S)}r S Valuation formula: Levered: V L = EBIT(1-T c )/r WACC Valuation formula: Unlevered: V U = EBIT(1-T c )/r Tradeoff theory of capital structure: V L = V U + PV(Interest Tax Shields) - PV(costs of financial distress) The Miller Model states: V L = V U + [1 - (1-T c )(1-T s )/(1-T B )]B T c = corporate tax rate T B = personal tax rate on debt T S = personal tax rate on equity distributions (dividends)...
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