Technical question - Discounting Capital Leases, Interest Tax Shields
Hi all,
I was reading the 'McKinsey Valuation' Book which recommended that in the Adjusted Present Value Method, the interest tax shields are discounted using the unlevered cost of equity in APV. However, I remember that operating leases are discounted using the cost of debt when we estimate the market value of these leases to adjust our Enterprise Value to Equity Value.
I was wondering if anybody could explain why interest tax shields are discounted using the unlevered cost of equity, in contrast to operating leases which are discounted using the cost of debt. All help is appreciated.
Cheers!
Hi Alex-wong-901, just trying to help:
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You're welcome.
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