CH7 - Adjusted NPV

Question 1

Assumptions

Answer 1

Method to degear and gear betas assumes debt is perpetual. Thus, overvalues the tax shield as debt is finite

Issue costs on equity are ignored

Question 2

Step 1: Calculate Base case NPV

Answer 2

Step 1: Calculate base case NPV

• Degear equity beta from snowboard average and calculate Ke UNGEARED
• Calculate Discount Rate for Base Case NPV
• Base Case NPV based on receipts, corporateion tax, TAD and Initial Outlay
• If Cash inflows given, this is the same as taxable profit