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BA 440 Final Formula Sheet

By Floyd Fisher,2014-06-22 12:11
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BA 440 Final Formula Sheet

    BA 440 Final Formula Sheet

     ;;rrrrefmfCAPM / Cost of Equity:

    Market risk premium: r - r mf

     LUnlevered/Levered Beta: u;;;;11tD/E

After tax cost of debt (r) = Before-tax cost of debt * (1-t) d

    After tax cost of debt (r) = BTr * (1-t) dd

    After tax cost of debt (r) = YTM * (1-t) d

    After Tax Cost of debt = (Treasury yield + spread) * (1-t) Interest Coverage Ratio = EBIT / Interest Expenses

     DpsCost of Preferred Stock: rps Pps

    EDPS???CostofcapitalWACCrrr ???edpsEDPSEDPSEDPS???

Cash Flows:

    Straight line depreciation: (Original asset value salvage value) / number of years to be depreciated

    EBIT=Rev Operating expenses (COGS) SGA Exp Other allocated expenses - Depr.&Amort.

Cash flow to firm = EBIT(1-t) + Depr.&Amort. Chg in WC Cap Exp.

Leases:

Operating lease cash flows: lease payments * (1 t)

Buy/borrow cash flows: Interest expense (after tax), Principal payment, Maintenance expenses (after tax),

    Depreciation tax benefit, Salvage value (after tax)

The net advantage to leasing : NPV of lease option NPV of buy option

Convertible Bonds:

    Conversion option = Convertible bond price value of straight bond component

     1(Value of a bond 1 - n~)Principal(1+r) ~) = C n r(1r)~)

    ~) ??

    Conversion ratio = # of shares for which each bond may be exchanged Conversion value = current value of shares for which the bonds can be exchanged

    Conversion premium = bond price conversion value

Venture Capital Method:

    Exit or terminal value = P/E multiple * forecasted earnings

    Estimatedexitvalue

    n;;1targetreturnDiscounted terminal value =

    VC ownership proportion = Capital provided / discounted terminal value

IPO Underpricing:

    Underpricing (return) = (first day closing price offer price) / offer price

Rights offerings:

    Rights required to purchase one share = # of original shares

     # of shares issued in RO

Value of the right = rights-on price subscription price

     n + 1

     OR rights-on price ex-rights price

Ex-rights price = New value of equity

     New number of shares

Benefits/Costs of debt:

    Yearly tax benefit from debt = Tax Rate * Interest Payment

    Cost of Capital Approach to Optimal Capital Structure:

     V*WACCCFgImplied growth rate assuming constant growth model: CFV

    Firm Value (Stable growth) = CF to Firm (1 + g) / (WACC -g)

Firm Value - Firm Value opt WACCorig WACC

Dividend policy:

     (1t)PP0BARelationship between prices, dividends and tax rates around ex-dividend day: D(1t) cg

     Chg in WC Cap Exp Free cash flow to equity = Net Income + Depr&Amort

     + (New Debt Issue Debt Repay) Pref. Dividends

    Estimated FCFE = Net Income - (1- ) (Capital Expenditures - Depreciation)

     - (1- ) (Chg in WC) Preferred Dividends

     where is the debt ratio (D / (D+E) and

     Chg in WC = WC WCtt-1

    where WC = Non-cash current assets non-debt current liabilities

    CF to stockholders to FCFE Ratio = (Dividends + Buybacks) / FCFE

Valuation:

    Relative valuation (P/E, P/BV, P/S):

     Firm value = Comparable multiple * Firm-specific denominator value

     PEG = (P/E)/ Growth

     P = stock price

    E = Net Income adjusted for transitory components

     BV (of equity) = total shareholders equity preferred stock

     Profit margin = Net income/Sales

     Retention ratio = 1 Dividends/Earnings

    t=n CF to EquitytValue of Equity= DCF valuation: (t(1+k) t=1e

    t=NCF to EquityTerminalValuet Value of Equity= (Nt(1+r)(1r)t=1ee

     CFtoEquity*(1g)NsTerminal value:

     rgesg = b * ROE

     CF*(1g)0Stock value using constant (stable) growth model:

     rge

PV equations: nCFPresent value of multiple cash flows: tPV(t ;;1r1tCFPVPresent value of a perpetuity: r

    FVPresent value of single future cash flow: PVt(1r)

    1(1 - n~)(1+r)~) of an Annuity = PV(A,r,n) = A PVr~)

    ~)??

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