This implies that for levered firms with the return on capital employed greater than the required rate of return for investors, higher equity in capital structure is preferable to compared to debt. This paper shows that the Value of Levered Firm is summation of Value of Unlevered Firm, the ...
After finding an unlevered beta, WACC then re-levers beta to the real or idealcapital structure. The ideal capital structure comes into play when looking to purchase the company, meaning the capital structure will change. Re-levering the beta is done as follows: Levered beta = Unlevered ...
Debt financing is more tax-efficient than equity financing since interest expenses are tax-deductible and dividends on common shares are paid with after-tax dollars. However, too much debt can result in dangerously high leverage levels, forcing the company to pay higher interest rates to offset th...
Why is stock valuation more difficult than bond valuation? Why do you think appraisers usually use three different approaches when estimating value? What are levered and unlevered cash flows? Why do we conduct separate valuation analyses for both scenarios?