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1. Discuss how taxes may affect firm value. Can changes in tax rates affect capital budgeting? How does a change in tax rate affect
1. Discuss how taxes may affect firm value. Can changes in tax rates affect capital budgeting? How does a change in tax rate affect municipal bonds? 2. Discuss the difference between accounting profit measures (EBIT, EBITDA, and Net Income) and FCF. 3. Discuss how recent interest rate increases may affect a firm's value. Sales revenues Value = Operating costs and taxes FCF (1 + WACC) Market interest rates Market risk aversion Required investments in operating capital Free cash flow (FCF) FCF (1 + WACC) Weighted average cost of capital (WACC) Cost of debt Cost of equity FCF (1 + WACC)* Firm's debt/equity mix Firm's business risk
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Taxes can have an impact on business equity in numerous ways Corporation tax ratio A rise in the company tax rate can lower a companys aftertax income causing its equity to fall Conversely lowering th...Get Instant Access to Expert-Tailored Solutions
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