公司理财罗斯英文原书第九版十八章.pptVIP

18.6 APV Example: Worldwide Trousers, Inc. is considering replacing a $5 million piece of equipment. The initial expense will be depreciated straight-line to zero salvage value over 5 years; the pretax salvage value in year 5 will be $500,000. The project will generate pretax savings of $1,500,000 per year, and not change the risk level of the firm. The firm can obtain a 5-year $3,000,000 loan at 12.5% to partially finance the project. If the project were financed with all equity, the cost of capital would be 18%. The corporate tax rate is 34%, and the risk-free rate is 4%. The project will require a $100,000 investment in net working capital.? Calculate the APV. 18.6 APV Example: Cost 18.6 APV Example: PV unlevered project 18.6 APV Example: PV depreciation tax shield 18.6 APV Example: PV interest tax shield 18.6 APV Example: Adding it all up Quick Quiz Explain how leverage impacts the value created by a potential project. Identify when it is appropriate to use the APV method? The FTE approach? The WACC approach? * * * Note, the example in the text assumes a perpetual project, so the PV of the tax shield is calculated assuming a perpetuity. The approach in this slide is comparable, but for a finite life project. * This example assumes an interest only loan. * This assumes we know the value created by the project. A more straightforward assumption is to assume that the ratio is 600/400, based on the amount provided by each source to fund the project. With these values, RS=11.80%. * Note that the chapter examples work out nicely with the perpetuity assumption, in that each approach provides the same value. With a finite life project, the values will deviate based on assumptions made, for example, the repayment of the $600. 18-* Valuation and Capital Budgeting for the Levered Firm Chapter 18 Copyright ? 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Key Concepts and Skills Understand the effects of leverage on the value created