Financing with Debt

6 important questions on Financing with Debt

When do you use the WACC method? Give 3 situations

1. If you analyse a snapshot (single period)
2. If you analyse multiple time periods, but the D/E ratio is constant
3. Firms in a steady state

Give the formula to calculate the NPV with the WACC

Zie afbeelding

Give the formula for the FTE method

FTE = cash flow from project to equity holders of the levered firm (LCF) / Re
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What 4 financing side effects are considered in the APV?

1. The tax subsidy to debt (Tc x D)
2. The costs of issuing new securities
3. The costs of financial distress
4. Subsidies to debt financing

Give the formula of a levered firm

VL = VU + Tc x D

Give the formula of unlevered Beta in a world with taxes

Betaunlevered = Betalevered / (1+ ((1-Tc) x D/E)))

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