Download Power Point VS – Impact of Tax Reform on Valuation – By Steve Hastings
Tax Reform on Valuation – Webinar Excerpt
Cost of Equity/Debt – TCJA has a direct impact on both cost of equity and cost of debt calculations
Accelerated Depreciation – Qualified tangible property placed in service between September 28, 2017 and 2022, which has a depreciable life up to 20 years, first year bonus depreciation percentage is 100% (Immediate depreciation is allowed for both new and used property)
Subsequent Year Bonus Depreciation:
GAAP vs. Tax Projections – Depreciation for GAAP reporting purposes will not use accelerated depreciation method.
CAPM Beta Issues – When using CAPM to forecast cost of equity to a public company, beta represents operating and financing risk; however, beta is typically measured by looking at historical changes over time compared to the overall stock market. Tax Reform on Valuation.
A new tax regime makes historical beta less predictive of the future
How to account for interest deduction limitations impact on financing risk?
Leveraging Issues – Estimating cost of equity to private companies creates additional issues
Beta calculation often requires unlevering and relevering of beta to account for capital structure.
Will companies change capital structure to account for lack of interest deduction?
Tax rate on debt is an input in the relevered beta calculation.