Hey guys, one issue with CAPM, WACC and Beta just doesn't seem right to me. Maybe somebody wouldn't mind helping me to figure it out. The usual formulas are Bu=Bl/(1+(1-t)D/E), Re= Rf + BlERP, WACC= (1-t)RdD/(D+E) + Re*E/(D+E), aren't we double counting tax shields if we use them together?
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How exactly would you be double-counting tax shield? You do it only once for debt. Your cost of equity calculation uses a levered beta, not an unlevered one so tax is not shielding anything
If we use comparables to get a bottom up beta we will first unlever their betas, then take the average and lever it. And we use tax rates in that calculation. Sry if it wasn't clear from my initial post.
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