Review of Domestic Capital Budgeting For our purposes it is necessary to expand the NPv equation CF=(R-0C1-D-l,)(1-x)+D1+l1(1-x) R, is incremental revenue I, is incremental interest expense Ct is incremental operating t is the marginal tax rate cash flow D, is incremental depreciation McGraw-Hilylrwoin 17-5 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 17-5 Review of Domestic Capital Budgeting For our purposes it is necessary to expand the NPV equation. CF (R OC D I )(1 τ) D I (1 τ) t = t − t − t − t − + t + t − Rt is incremental revenue Ct is incremental operating cash flow Dt is incremental depreciation It is incremental interest expense is the marginal tax rate
Review of Domestic Capital Budgeting For our purposes it is necessary to expand the NPV equation CF=(R-0C1-D-l,)(1-x)+D1+l1(1-x) (M1+D2+1(1-τ (R-OC - D(1-T)+D NO1(1-)+D =(R-OC1)(1-)+D =OCF(1-)+D McGraw-Hilylrwoin 17-6 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 17-6 Review of Domestic Capital Budgeting For our purposes it is necessary to expand the NPV equation. CF (R OC D I )(1 τ) D I (1 τ) t = t − t − t − t − + t + t − (NI D I (1 τ) = t + t + t − t t Dt = (R −OC − Dτ)(1− τ) + t Dt = NOI (1− τ) + t t t = (R −OC )(1− τ) + τD t t = OCF (1− τ) + τD
Review of Domestic Capital Budgeting We can use CE=OCF d-t)+D to restate the NPv equation NPV= y CE 台(1+K)(1+K) as Npy ∑ OCF(1-t)+D TV (1+K) (1+k)>-C McGraw-Hilylrwoin 17-7 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 17-7 Review of Domestic Capital Budgeting We can use t t t CF = OCF (1− τ) + τD 0 1 (1 ) (1 ) C K TV K CF NPV T T T t t t − + + + = = to restate the NPV equation 0 1 (1 ) (1 ) (1 ) C K TV K OCF τ τD NPV T T T t t t t − + + + − + = = as: