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    Cover Page
    Website
    Title Page
    Copyright
    Dedication
    Preface to the Third Edition
    Contents
    CHAPTER 1: Introduction to Valuation
    CHAPTER 2: Approaches to Valuation
    CHAPTER 3: Understanding Financial Statements
    CHAPTER 4: The Basics of Risk
    CHAPTER 5: Option Pricing Theory and Models
    CHAPTER 6: Market Efficiency—Definition, Tests, and Evidence
    CHAPTER 7: Riskless Rates and Risk Premiums
    CHAPTER 8: Estimating Risk Parameters and Costs of Financing
    CHAPTER 9: Measuring Earnings
    CHAPTER 10: From Earnings to Cash Flows
    CHAPTER 11: Estimating Growth
    CHAPTER 12: Closure in Valuation: Estimating Terminal Value
    CHAPTER 13: Dividend Discount Models
    CHAPTER 14: Free Cash Flow to Equity Discount Models
    CHAPTER 15: Firm Valuation: Cost of Capital and Adjusted Present Value Approaches
    FREE CASH FLOW TO THE FIRM
    FIRM VALUATION: THE COST OF CAPITAL APPROACH
    FIRM VALUATION: THE ADJUSTED PRESENT VALUE APPROACH
    EFFECT OF LEVERAGE ON FIRM VALUE
    Cost of Capital and Optimal Leverage
    ADJUSTED PRESENT VALUE AND FINANCIAL LEVERAGE
    CONCLUSION
    QUESTIONS AND SHORT PROBLEMS
    CHAPTER 16: Estimating Equity Value per Share
    CHAPTER 17: Fundamental Principles of Relative Valuation
    CHAPTER 18: Earnings Multiples
    CHAPTER 19: Book Value Multiples
    CHAPTER 20: Revenue Multiples and Sector-Specific Multiples
    CHAPTER 21: Valuing Financial Service Firms
    CHAPTER 22: Valuing Firms with Negative or Abnormal Earnings
    CHAPTER 23: Valuing Young or Start-Up Firms
    CHAPTER 24: Valuing Private Firms
    CHAPTER 25: Aquisitions and Takeovers
    CHAPTER 26: Valuing Real Estate
    CHAPTER 27: Valuing Other Assets
    CHAPTER 28: The Option to Delay and Valuation Implications
    CHAPTER 29: The Options to Expand and to Abandon: Valuation Implications
    CHAPTER 30: Valuing Equity in Distressed Firms
    CHAPTER 31: Value Enhancement: A Discounted Cash Flow Valuation Framework
    CHAPTER 32: Value Enhancement: Economic Value Added, Cash Flow Return on Investment, and Other Tools
    CHAPTER 33: Probabilistic Approaches in Valuation: Scenario Analysis, Decision Trees, and Simulations
    CHAPTER 34: Overview and Conclusion
    References
    Index
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    CHAPTER 15: Firm Valuation: Cost of Capi... > EFFECT OF LEVERAGE ON FIRM VALUE

    EFFECT OF LEVERAGE ON FIRM VALUE

    Both the cost of capital approach and the APV approach make the value of a firm a function of its leverage. It follows directly, then, that there is some mix of debt and equity at which firm value is maximized. The rest of this chapter considers how best to make this link.


      

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