FINA 410 Lecture Notes - Lecture 15: Tax Rate, Interest Expense, Today Extra

• School: Concordia University
• Department: Finance
• Course: FINA 410
• Professor: Jean Mayer

Document Summary

Chapter 15 firm valuation: cost of capital and adjusted. Past two chapters examined two approaches to valuing equity: ddm & fcfe valuation models. Now we focus on approaches to value entire firm: (cid:271)y eithe(cid:396) dis(cid:272)ou(cid:374)ti(cid:374)g (cid:272)u(cid:373)ulati(cid:448)e cf"s to fi(cid:396)(cid:373) (cid:271)y wacc, or adding marginal impact of debt on unlevered firm value. Then, we look at how leverage affects firm value and how the presence of default risk, taxes and agency costs may lead to a decrease in value with increasing leverage. That is why we argue that optimal financing mix for a firm is one that maximizes value. Fcff is the su(cid:373) of all the cf"s that goes to (cid:272)lai(cid:373)holde(cid:396) of the fi(cid:396)(cid:373) 2 ways to measure it: 1) fcff = fcfeor dividends + int expense(1-tc) + principal repayments new debt issues + preff. Cash flows to equity, lenders and preferred stockholders.