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Example: <strong>APV</strong> vs. FCF/WACC<br />
1. Debt in capital structure 0% 10%<br />
2. EBIT $120,000 $120,000<br />
3. Interest 0 4,125<br />
4. Profit before tax 120,000 115,875<br />
5. Tax 60,000 57,938<br />
6. Profit after tax 60,000 57,938<br />
7. Dividends 60,000 57,938<br />
8. Total pmts to security holders (3+7) 60,000 62,063<br />
9. Cost of debt 8.25%<br />
10. Cost of equity<br />
12.50%<br />
11. Market value of debt (3/9) 0 50,000<br />
12. Market value of equity (7/10) 500,000 463,500<br />
13. Market value of firm (11+12) 500,000 513,500<br />
14. Book value of debt 0 50,000<br />
15. Book value of equity 500,000 450,000<br />
16. Book value of firm 500,000 500,000<br />
17. Book value debt ratio (14/16) 0.0% 10.0%<br />
18. Market value debt ratio (11/13) 0.0% 9.7%<br />
19. WACC 12.0% 11.7%<br />
20. FCF $60,000 $60,000<br />
21. Market value of firm (20/19) $500,000 $513,500
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