Management and Organizational Studies 3311A/B Lecture Notes - Lecture 7: Cash Flow, Net Present Value, Full-Time Equivalent

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 3311A/B
• Professor: Jun Wang

Document Summary

Now consider the value of a firm"s project when leverage is used, and other market imperfections. We now consider 3 alternativities to valuing a project or firm. Considers the npv of the project if it were all-equity financed and adds on the pv of any benefits and costs from the use of debt. Applicable if you know the debt amount every period. If government has policy favouring this type of investment, the firm might be able to borrow from the government at a lower rate (saving) Strictly from the point of view of shareholders (equity) holders. Npvfte calculated using: equity portion of initial investment, cash flows to equity holders of levered firm, ex. levered cash flow, the levered cost of equity, rs. Note: ucf lcf = (1 tc)*rd*d -after tax interest payment: saved tax by using debt goes to shareholders.