Corporate Debt & APV Calculator — Bond Pricing, Tax Shield, WACC
Price corporate bonds, value the interest tax shield, and compute levered firm value and WACC using Modigliani-Miller and CAPM, with amortization and covenant capacity.
Corporate Debt Financing
A clear path from inputs to results.
Value corporate debt and the capital structure around it: price a bond from its coupons and redemption, discount the interest tax shield, and read the levered firm value, WACC, and covenant capacity that follow. The node uses the Modigliani-Miller tax-shield benchmark and CAPM, and supports both bullet bonds and amortizing loans.
How to use
- Choose the debt structure (bullet bond or amortizing loan) and whether the cost of equity comes from CAPM or a direct input.
- Set the bond terms: face value, coupon rate, yield (which also drives the debt discount rate), maturity in years, and payments per year.
- Enter the firm inputs: tax rate, unlevered firm value, and the unlevered cash flow, growth, and discount rate used for the perpetuity cross-check.
- For CAPM, set the risk-free rate, market risk premium, and equity beta; or switch to direct mode and enter the cost of equity outright.
- Enter EBIT and EBITDA with the minimum interest-coverage and maximum debt/EBITDA limits to see covenant headroom and recommended maximum debt.
- Read the debt value, PV of the tax shield, levered value, WACC, and the amortization schedule, with 2D and 3D views of value across debt ratio and tax rate.
The formula
Reference: Modigliani & Miller (1963), corporate taxes and the value of the firm; Sharpe (1964) CAPM; standard bond-pricing and APV conventions (Brealey, Myers & Allen, Principles of Corporate Finance).
Worked example
Seven-year bullet bond, CAPM cost of equity (default inputs)
- Bullet bond; face $1,000; coupon 6.5%; yield 7.2%; maturity 7 years; 2 payments/year; tax rate 24%; unlevered firm value $2,200; CAPM with risk-free 4%, market risk premium 5.5%, beta 1.1; tax-shield discount rate 7.2%.
- 1
With 2 payments a year over 7 years there are n = 14 periods, a periodic coupon of $1,000 × 6.5% ÷ 2 = $32.50, and a periodic yield of 7.2% ÷ 2 = 3.6%. Discounting the 14 coupons plus the $1,000 redemption at 3.6% gives a bond (debt) value of $962.03 — below par because the 6.5% coupon trails the 7.2% yield. The CAPM cost of equity is 4% + 1.1 × 5.5% = 10.05%. The tax shield each period is 24% of that period's interest (interest = outstanding balance × 3.6%, starting from the $962.03 bond value); discounting all 14 shields at 3.6% gives a PV of $91.53. Equity value is then V_U + PV(tax shield) − debt = $2,200 + $91.53 − $962.03 = $1,329.50, while the Modigliani-Miller benchmark gives a levered value of V_U + tD = $2,200 + 0.24 × $962.03 = $2,430.89. WACC weights the 10.05% cost of equity and the after-tax 7.2% × (1 − 0.24) cost of debt by those equity and debt values, giving 8.13%.
Debt value $962.03; cost of equity 10.05%; PV of tax shield $91.53; equity value $1,329.50; levered value (MM benchmark) $2,430.89; WACC 8.13%.
Interpreting the result
The bond prices below par because its coupon is lower than the market yield, so lenders accept $962.03 today to earn 7.2%. The $91.53 tax shield is the value tax-deductible interest adds to the firm, and the MM benchmark V_L = V_U + tD isolates that same leverage benefit. WACC at 8.13% sits below the 10.05% cost of equity because debt is cheaper and its interest is tax-deductible; it is the hurdle rate the levered firm should discount its cash flows at.
Assumptions & limitations
- The tax shield is discounted at the debt-policy rate (defaulted to the bond yield), which is the fixed-debt APV convention; discounting at the unlevered cost of capital instead would change the PV.
- The amortization schedule starts the outstanding balance at the bond's market value, not its face value, so period-one interest is yield times price rather than yield times par.
- V_L = V_U + tD is the Modigliani-Miller benchmark with corporate taxes only; it ignores personal taxes, financial-distress costs, and agency effects, so it overstates the value of leverage at high debt levels.
- The tax rate is treated as a constant marginal rate and the firm is assumed always able to use the interest deduction (no loss carryforwards or interest-limitation caps).
- CAPM beta is an input, not re-levered as the debt ratio changes; the covenant capacity figures use the EBIT, EBITDA, and limit inputs exactly as entered.
Frequently asked questions
Why is the bond priced below its $1,000 face value?
Because its 6.5% coupon is below the 7.2% market yield. A buyer who can earn 7.2% elsewhere will only pay less than par for a bond that pays 6.5%, so the present value of the coupons plus redemption discounted at 3.6% per half-year comes to $962.03 — a discount bond.
Why is WACC lower than the cost of equity?
WACC blends the 10.05% cost of equity with the cost of debt, which is both lower (7.2%) and tax-advantaged — the after-tax cost is 7.2% × (1 − 0.24) = 5.47%. Weighting those by the equity and debt values gives 8.13%, below the equity cost. This is why moderate leverage can lower a firm's overall hurdle rate.
What does the implied unlevered value from the perpetuity check tell me?
It is an independent cross-check: dividing the unlevered annual cash flow by (unlevered discount rate − growth) gives $250 ÷ (0.11 − 0.02) = $2,777.78. Comparing that Gordon-growth estimate with the unlevered value you entered ($2,200) shows whether your standalone firm-value assumption is consistent with its cash-flow fundamentals.
How is the present value of the tax shield calculated?
Each period the interest expense (the outstanding balance times the 3.6% periodic yield) generates a tax saving equal to the 24% tax rate times that interest. The engine sums those savings across all 14 periods, discounting each at the tax-shield discount rate, which defaults to the bond yield. For the default bond that totals $91.53.
What is the difference between the equity value and the levered value shown?
The levered value ($2,430.89) is the MM benchmark for the whole firm, V_U + tD. The equity value ($1,329.50) is what is left for shareholders after subtracting the debt: it is computed as the unlevered value plus the PV of the tax shield minus the market value of the debt. They answer different questions — total firm value versus the shareholders' slice.
When would I use the amortizing-loan mode instead of a bullet bond?
A bullet bond repays all principal at maturity and pays only coupons in between; an amortizing loan repays principal gradually through a level payment. Switching to amortizing mode shows that level payment — $92.19 per period for the default $1,000 principal at 3.6% over 14 periods — and a declining balance, which changes the interest and tax-shield profile over time.
Methodology last reviewed 2026-10-06. Results are informational and not financial or engineering advice — see our disclaimer.