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Fins3625 - Lecture 5 (Flow-to-Equity / FCFE (Free Cash Flow to Equity)…

- - - - Debt Capacity
        
        The amount of debt that is required, at time t, to maintain the firm's debt-equity ratio.
        
        D_t: debt capacity
        d_t: debt-value ratio
        V_t^L: Levered continuation value on date t
        D_t = d_t * V_t^L
        
        V(t)^L = [ FCF(t+1) + V(t+1)^L ] / 1 + r_wacc
        
        18-4:
        
        FCF is given
        
        Working backwards to get from FCF to V^L at various t
        
        D is given as d * V^L; where d = 50%
- - - - Interest Tax Shield(t) = Interest Paid(t) * TR
        
        PV(interest tax shield) = ITS1/(1+r_u) + ITS2/(1+r_u)^2 + ITS3/(1+r_u)^3 + ITS4/(1+r_u)^4