This note presents a series of questions that leads students through the crucial sense linking firm value and capital structure. It begins with a non-tax standard, then earnings through valuations with tax deductibility based on (1) a discount rate with tax effects assembled in (reduction free cash flow at the WACC), (2) the valuation of specific claims (worth equity cash flows and debt cash flows individually), and (3) the valuation of kinds of cash flow (value assets and interest tax shields individually).
The note concludes by linking these theories to stock price effects around recapitalizations. Financial risk (leverage effects on CAPM betas) is also introduced and exemplified.
PUBLICATION DATE: December 21, 2009 PRODUCT #: UV3929-HCB-ENG
This is just an excerpt. This case is about FINANCE & ACCOUNTING
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