Lecture 3/4

Question 1

PV - tax shield

Answer 1

tax shields (t x rd x D) / interest rate (rd)

Question 2

Ru (return on unlevered equity) / R wacc

Answer 2

(E/E+D)Re + (D/E+D)Rd

Question 3

Re (return on levered equity), also same as cost of capital formula

Answer 3

Ru + D/E (Ru-Rd)

Question 4

Estimate unlevered cost of capital using risk free rate and premium

Answer 4

risk free rate + Ru x market risk premium