Technical Questions: Beta, discount rate, etc.
(Monkey, 51
Points)
on 1/1/13 at 2:56pm
Hi everyone. I just have some questions on the DCF analysis.
1 What is the difference between leveraged beta and unleveraged beta? Why do we need both?
2 When calculate the discount rate in WACC, why do we multiply (D/(D+E)*rd) by (1-t)? (t: tax rate, rd: discount rate for debt)
3 Why do we need to add DTS to the valuation when doing the APV?
Thanks everyone and Happy New Year!





1. Beta is impacted by the
1. Beta is impacted by the leverage of the business and as such the leveraged beta is higher than unleveraged beta for companies with debt due to higher risk of bankruptcy
2. The cost of debt is post-tax since we do not account for the tax shield in the FCF calculation
3. APV is a DCF with operating NPV and financing NPV broken out, but not sure what DTS stands for.
Makewhole: 3. APV is a DCF
3. APV is a DCF with operating NPV and financing NPV broken out, but not sure what DTS stands for.
Depreciation tax shield
Makewhole: 1. Beta is
1. Beta is impacted by the leverage of the business and as such the leveraged beta is higher than unleveraged beta for companies with debt due to higher risk of bankruptcy
2. The cost of debt is post-tax since we do not account for the tax shield in the FCF calculation
3. APV is a DCF with operating NPV and financing NPV broken out, but not sure what DTS stands for.
Thank you. But for question 2, why do we multiply it to the debt part instead of the equity part? What is the point of imposing corporate tax to a firm's debt?
anavoisp: Makewhole: 1.
1. Beta is impacted by the leverage of the business and as such the leveraged beta is higher than unleveraged beta for companies with debt due to higher risk of bankruptcy
2. The cost of debt is post-tax since we do not account for the tax shield in the FCF calculation
3. APV is a DCF with operating NPV and financing NPV broken out, but not sure what DTS stands for.
Thank you. But for question 2, why do we multiply it to the debt part instead of the equity part? What is the point of imposing corporate tax to a firm's debt?
I believe it's because interest on outstanding debt is tax deductible.
NestoGrande: anavoisp: Ma
1. Beta is impacted by the leverage of the business and as such the leveraged beta is higher than unleveraged beta for companies with debt due to higher risk of bankruptcy
2. The cost of debt is post-tax since we do not account for the tax shield in the FCF calculation
3. APV is a DCF with operating NPV and financing NPV broken out, but not sure what DTS stands for.
Thank you. But for question 2, why do we multiply it to the debt part instead of the equity part? What is the point of imposing corporate tax to a firm's debt?
I believe it's because interest on outstanding debt is tax deductible.
Thank you so much. Do you know the answer to question 3?