Ch17Capital Budgeting(澳大利亚新英格兰大学公司金融课件).ppt

Lecture 17 Capital Budgeting for Levered Firm Three approaches Adjusted Present Value (APV) approach Example Example (Continued) Example (Continued) Example (Continued) Example (Continued) Flow to Equity (FTE) Approach Applying the FTE Approach to the Previous Example Example (Continued) Weighted Average Cost of Capital (WACC) Approach WACC Approach (continued) Applying the WACC Approach to the Previous Example Comparison of the APV, FTE and WACC Comparison of APV, FTE and WACC (Continued) Comparison of APV, FTE and WACC (Continued) Example : Finite lived project with floatation costs and interest subsidy Example (continued) Example (continued) Example (continued) * 1. Adjusted Present Value (APV) approach 2. Flow to Equity (FTE) approach 3. Weighted Average Cost of Capital (WACC) approach Calculate NPV ignoring financing, then add NPV of financing (NPVF) : APV = NPV + NPVF Quantifiable financing side effects often include tax shield due to debt effects of personal taxes floatation costs of issuing new debt or equity securities subsidies to interest costs provided by governments Non-financial effects of debt may be reflected in market interest. In any case, they depend on : variability of the cash flow from the project amount of leverage the firm currently has Suppose bankruptcy and financial distress costs are irrelevant. The NPV for the project with all-equity finance is 1. All-equity value 2. Additional financing side-effect Adjusted Present Value (APV) of the Project Immediately as the project is announced, the market value of the original $5m equity should jump to $6.7m, and to $11.7m : 3. Including Personal Taxes With personal taxes, the PV of the tax shield would change 4. Subsidized Financing Since the appropriate discount rate is still , the PV of the tax shield becomes If the $5m debt is sold as a municipal bond at 5. Floating Costs To net (1-0.125)*$5,714,286 = 5,000,000 new debt. With floatation costs at 12.