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7 Cards in this Set
- Front
- Back
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Interest coverage |
EBIT/Interest on debt |
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Interest plus principal coverage |
EBIT/(principal/(1-Tc)) + interest on debt |
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Cost of Equity |
D1/P0 + g |
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Present value of tax sheild |
(Tax rate × interest) / expected return on debt |
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Break even EBIT |
(EBIT-c1)(1-t)) / s1 = (EBIT-c2)(1-t))/s2
c1, c2 = annual interest expense s1, s2 = number of shares outstanding after finance |
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Relative tax advantage on debt |
(1-Tp) / (1-Tpe)(1-Tc) Tp = personal tax rate on interest Tpe = effective personal tax rate on equity income |
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Cost of equity |
Rf+(Rm-Rf)B (CAPM) |
