Page 143 - AFM Integrated Workbook STUDENT S18-J19

Risk adjusted WACC and adjusted present value

4.4 Step 2: Present value of financing side-effects

 “Financing side-effects” include the following:

Issue costs

Tax relief on interest

Post-tax interest savings on subsidised loans

 Note: when discounting the financing side-effects cash flows, a discount rate
should be used that reflects the risk of those cash flows. Hence, the risk free
rate is often used (or the company’s k d if the debt finance is not risk free).

131