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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)~)

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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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