《Valuation 估值》.pptVIP

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * The Unlevered Value of the Project (contd) For Avco, its unlevered cost of capital is calculated as: The project’s value without leverage is calculated as: Valuing the Interest Tax Shield The value of $59.62 million is the value of the unlevered project and does not include the value of the tax shield provided by the interest payments on debt. The interest tax shield is equal to the interest paid multiplied by the corporate tax rate. Expected Debt Capacity, Interest Payments, and Tax Shield for Avco’s RFX Project Valuing the Interest Tax Shield (contd) The next step is to find the present value of the interest tax shield. When the firm maintains a target leverage ratio, its future interest tax shields have similar risk to the project’s cash flows, so they should be discounted at the project’s unlevered cost of capital. Valuing the Interest Tax Shield (contd) The total value of the project with leverage is the sum of the value of the interest tax shield and the value of the unlevered project. The NPV of the project is $33.25 million $61.25 million – $28 million = $33.25 million This is exactly the same value found using the WACC approach. Summary of the APV Method Determine the investment’s value without leverage. Determine the present value of the interest tax shield. Determine the expected interest tax shield. Discount the interest tax shield. Add the unlevered value to the present value of the interest tax shield to determine the value of the investment with leverage. Summary of the APV Method (contd) The APV method has some advantages. It can be easier to apply than the WACC method when the firm does not maintain a constant debt-equity ratio. The APV approach also explicitly values market imperfections and therefore allows managers to measure their contribution to value. Textbook Example 18.3 Textbook Example 18.3 (contd) The Flow-to-Equity Met