Mark Grinblatt Sheridan TitmanFinancial Markets and Corporate Strategy, 2/e

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Mark Grinblatt Sheridan TitmanFinancial Markets and Corporate Strategy, 2/e

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13-2

Part III

Valuing Real Assets

Mark Grinblatt Sheridan TitmanFinancial Markets and Corporate Strategy, 2/e

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Chapter 13

Corporate Taxes and the Impact of Financing on Real Asset Valuation

Mark Grinblatt Sheridan TitmanFinancial Markets and Corporate Strategy, 2/e

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Exhibit 13.1: Balance Sheet for a Firm with Leverage When Debt Interest Is Corporate Tax Deductible

Assets

Debt Tax Shield (TX) TcD

Unlevered Assets (UA) D + E - TcD

Liabilities and Equity

Debt D

Equity E

Mark Grinblatt Sheridan TitmanFinancial Markets and Corporate Strategy, 2/e

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Exhibit 13.2: Sources of Shareholder Value

Mark Grinblatt Sheridan TitmanFinancial Markets and Corporate Strategy, 2/e

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Exhibit 13.3: The Unlevered Cash Flows and Debt Tax Shields for Acme Industries

Note: r DS represents the promised interest rate on the senior debt and r DJ is the promised interest rate on the junior subordinated debt.

Mark Grinblatt Sheridan TitmanFinancial Markets and Corporate Strategy, 2/e

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Exhibit 13.4: WACC, Cost of Equity, and Cost of Debt vs. With No Taxes E

D

Mark Grinblatt Sheridan TitmanFinancial Markets and Corporate Strategy, 2/e

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13-8

Exhibit 13.5: WACC, Cost of Equity, and Cost of Debt vs. with Corporate Taxes E

D