Tax rate 35%

Re 10%
E 10,000,000 0.666667 0.079667
E+D 15,000,000
Rd 6% 88
Ba 2.00
Rf 5%
Rm 11%

FCF
1 2 3 4 5
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Revenue 0.850 0.850 0.850 0.850 0.850
COGs Savings 0.800 0.800 0.800 0.800 0.800
Technology costs 0.350 0.350 0.350 0.350
Depreciation 0.500 0.500 0.500 0.500 0.500

EBIT 1.150 0.800 0.800 0.800 0.800

EBIT (1-T) 0.747 0.520 0.520 0.520 0.520

Receivables 0.170 0.170 0.170 0.170 0.170

Payables 0.120 0.120 0.120 0.120 0.120
Inventory -0.350

NWK 0.050 -0.300 0.050 0.050 0.050

Change in NWK 0.050 -0.350 0.350 0.000 0.000

CAPEX 3.00
Mkt Value Tech
Capital gains tax

FCF -3.000 1.197 1.370 0.670 1.020 1.020

WACC 7.97%

NPV
Ra 17.00%

FCF(Ra) -3.0000 1.0235 1.0008 0.4183 0.5443 0.4652

NPV(Ra) 0.7251

TAX SHIELD
Debt 1.00
Interest rate 7.00%
1 2 3 4 5
Cash flow loan 0.0700 0.0700 0.0700 0.0700 0.0700
Tax shield 0.0245 0.0245 0.0245 0.0245 0.0245

Rts 7.00% Makes sense as debt is risk free, and profits are positive

Tax shield (Rts) 0.0229 0.0214 0.0200 0.0187 0.0175

 PV TS 0.1168

APV 0.8419

TAX SHIELD MISPRICED DEBT

Debt 1.00
Interest rate 11.00%
1 2 3 4 5
Cash flow loan 0.1100 0.1100 0.1100 0.1100 0.1100
Tax shield 0.0385 0.0385 0.0385 0.0385 0.0385

Rts 7.00% Makes sense as debt is risk free, and profits are positive

Tax shield (Rts) 0.0360 0.0336 0.0314 0.0294 0.0274

PV TS 0.1835

Cost debt mispricing 0.0400 0.0400 0.0400 0.0400 0.0400

Cost debt mispricing (Rts) 0.0374 0.0349 0.0327 0.0305 0.0285

PV CDM 0.1907

APV =NPV + PV(TS) + PV (C 0.7179

 6
Year 6
0.850
0.800
0.350
0.500

0.800
0.520

0.170
0.120
0.450

0.500
0.450

0.200
0.070
ii
0.700

0.2729

6
0.0700
0.0245

ts are positive

0.0163
 6
0.1100
0.0385

ts are positive

0.0257

0.0400

0.0267