1 / 5

MN50324: Additional Corporate Finance Slides

This presentation provides a comparison of the Modigliani-Miller (MM) and Capital Asset Pricing Model (CAPM) cost of capital equations. It includes a numerical example and explores the implications of changing the cost of capital for a firm.

jlois
Télécharger la présentation

MN50324: Additional Corporate Finance Slides

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. MN50324:Additional Corporate Finance Slides Comparing MM and CAPM. => MM equations.

  2. Comparison of MM and CAPM Cost of Capital Equations

  3. Numerical Example • Firm X has • Firm wants to change to • Risk free rate = 7%. • Tax rate = 50%, E(Rm) = 17%, Leveraged Beta = 0.5. • What is current WACC? • Current Ke? • What will new Ke and WACC be?

  4. Answer: • Current Ke (CAPM) • Current WACC • Ke.unlevered • New WACC • Firm Value = NCF(1-t)/WACC • Old Value = 100(1-0.5)/WACC = 485 • New Value = 100 (1-0.5)/ WACC = 529 (tax shield)

  5. MM Diagrams K D/E V D/E

More Related