Formula sheet
Value and cost of capital
V = D + S · Vop = FCF(1 + g) / (WACC − g)
WACC = wd(1 − T)rd + wsrs
Business risk
QBE = F / (P − V)
Financial leverage
ROIC = EBIT(1 − T) / Operating capital · ROE = NI / Equity
Debt raises ROE only if ROIC > rd(1 − T)
Modigliani–Miller
No taxes: VL = VU · rsL = rsU + (D/S)(rsU − rd)
Corporate taxes: VL = VU + TcD · rsL = rsU + (D/S)(rsU − rd)(1 − Tc)
Miller: VL = VU + [1 − (1 − Tc)(1 − Ts) / (1 − Td)] D
Trade-off theory
VL = VU + PV(tax shield) − PV(financial distress costs)
Optimal structure
Hamada: b = bU[1 + (1 − T)(wd/ws)]
CAPM: rs = rRF + b(RPM)
Recapitalization
PPost = (VopNew − DOld) / nPrior
nPost = nPrior − (DNew − DOld) / PPost
SPost = (1 − wd) VopNew