Lecture 3 Flashcards
1
Q
Interest tax shield meaning
A
The reduction in taxes paid due to the tax deductibility of interest
1
Q
Equation of interest tax shield
A
Interest Tax Shield = Corporate Tax Rate * Interest Payments
2
Q
Cost of capital equation
A
Cost of capital = CAPM (Cost of equity) + Cost of Debt
3
Q
Cost of debt equation
A
(Interest / Total debt) * (1-T)
T - Tax rate
4
Q
NPV equation
A
NPV = Cash flow / (1+i)^t
