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Lecture7 - when to use APV

4x21840 fornewdebt yr1 yr2 yr3 yr4 yr5 yr6 5000 4000

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Unformatted text preview: e end of year 5. KKR will supply $30 of the $80 required for the acquisition, while the remaining $50 will be raised by issuing different types of debt. Debt will be repaid in $10 installments in each of the first five years. 8 More Details About PJ Its tax rate is 40% Its cost of debt is 10% per year Its unlevered cost of equity is 20% Its current and perpetual (book) debt outstanding is $21 Its current and perpetual (book) equity outstanding is $63 9 APV Valuation All­equity value = $15/.2 = $75 PV of tax shields from perpetual debt = .4x$21 = $8.40 FOR...
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