a.
To explain:
Interest tax shield and vale of tax shield
a.
Explanation of Solution
Interest tax shield is availing tax deduction in tax amount for individual and for corporate as well. It includes all reduction and deduction mentioned in tax laws.
Value of tax shield is the amount of gain by the tax shield in future and can be calculated in present amount known as the value interest tax shield.
b.
To explain:
Adjusted present value (APV) model
b.
Explanation of Solution
Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount.
c.
To explain:
Compressed adjusted present value (CAPV) method
c.
Explanation of Solution
Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount. It is called compressed because free cash flows and tax shields are discounted at the same rate.
d.
To explain:
Free cash flows to equity model
d.
Explanation of Solution
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Chapter 21 Solutions
Financial Management: Theory & Practice
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- Explain Statement of Before-Tax Cash Flow (BTCF)?arrow_forwardHow do I create an After tax Cash Flow Analysis? Use rounded answers for subsequent calculationsarrow_forwardHow is the compressed adjusted present value (APV) model different from the Modigliani and Miller models? (Hint: consider the tax shield's discount rate.) What about this model is "condensed"?)arrow_forward
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning