Receivables
Turnover=Sales/AR
Times
Int.
Earned=EBIT/interest
Accounting
veil:
not
affect
stock
prices
Break
Even:
Accounting:
Q=
(FC+D)/PV
Total
OCF=
OCF
addition
to
NWCcapital
spending
Cash
Q=
(FC)/PV
Can
only
service
op.
costs
not
investment
NI=0
Payback=N
NPV<0
IRR=0
OCF=0
Payback=infinity
NPV=Co<0
IRR=100%
Financial:
Payback=N
Q=
(FC+OCF*)/PV
NPV=0
OCF*=Co/PVAF
IRR=r
DOL=
1+
(FC/OCF)
DOL=
degree
to
which
Change
project
relies
on
fixed
OCF=DOL*%change
in
Q
costs
Bond
Value=
PV(Coupons)
+
PV(FV)
HPR=(P1P0)/P0
SML! = ! + ! ! !
Does
not
require
companies
to
apy
dividends
&
have
steady
growth,
base
calculations
on
2
estimates,
explicitly
considers
risk.
Fixed
Asset
Turnover=
sales/net
fixed
assets
Total;
Debt
Ratio=
(AssetsEquity)/Assets
Capital
Intensity
Ratio:Total
Assets/Sales
(use
%
of
sales
approach)
Efficient
Market:
NPV=0,
well
organized
markets
are
efficient,
investors
get
what
they
pay
for,
firms
get
exact
value.
Holding
Period
Yield:
Rate
where
Co=
PV(cash
inflows)
Price
Earnings:
P=EPS/R
+NPVGO
DFL
=
EBIT/(EBITInterest)
=%change
in
EPS/%change
in
EBIT
Long
Term
Debt
Ratio
=
LT
Debt/LT
Debt+equity
Equity
Multiplier:
Total
Assrts/Total
Equity
Days
Sales
in
Receivable
=365/receivables
turnover
M&M
Proposition
1
! = !
= !
! ( )
= +
Arbitrage
Opp
when
Vl<Vu
Capital
Structure
Irrelevant
WACC
same
no
matterD/E
M&M
Proposition
2:
!
! = ! + (! ! )
Ra
=WACC
!
Cost
of
equity
rises
as
debt
increase
Equity
Risk=business
+
financial
M&M
Proposition
1
with
Tax
1
! = !
!
! = ! + ()
straight
line
with
slope
of
Tc.
Y
intercept
of
Vu
Compound
G
of
Dividends:
(! )!/! 1
And
(1+r)*(1+r)^1/t

1
M&M
Proposition
2
with
taxes:
! = ! + (! ! )(1 )
= ( ! )(1 )/!
CAPM:
! = ! + ! ! !
! = ! (1 + )
Interval
Measure:
current
assets/avg.
daily
op.
costs
DuPoint
ROE
=
NI/Total
Equity
=(NI/Assets)
X
(Total
Assets/Total
Equity)
=(NI/S)
X
(S/A)
X
(A/E)
=(NI/S)
X
(S/A)
X
(1+
D/E)
=Profit
Margin
x
total
asset
turnover
x
equity
multiplier
Dividends:
Share
price
cum
div
=
equity/#of
sharesw
Share
price
ex
div
=
share
price
div
Share
price
=PV(all
future
divs)
Dividend
Payout
Ratio
=
Dividends/NI
Cost
of
Equity
Capital=R=(D1/Po)
+g
=
dividend
yield
+capital
gains
yield
Point
of
financial
leverage
Indifference:
EPS(with
Debt)=EPS(without
Debt)
EBIT
=
interest/
1
(#shares
with
debt/#shares
without
Debt)
Nominal
Risk
Prem=Avg.
Nom
ReturnRisk
free=
arithmetic
Real
Risk
Free
Rate=
Risk
free
avg.
infl.
Real
Risk
Prem=Avg
Real
return
RealRisk
Free
Dilution:
NI
increases
by
ROE
x
New
issue
amount
New
Market
share
price:
use
EPS
not
sale
price
Effective
Annual
Rate:
Home
250,000
Downpmt
12500
Loan
237,500
Term
120m
APR
13%
SEMI
ANNUAL
COMPOUND
EAR
(1+6.5%)^2
1
=0.134225
Effective
monthly
rate
(1+EAR)power(1/12)
1
Set
your
calculator
to
BEG
PV
=237,500
T=120
R=1.0551
FV=0
THEN
COMPUTE
PMT
=
3462.31
Check:
EAR
= ! 1
Theoretical
Value
of
a
right:
!
! =
+ 1
!
=common
share
price
with
rights
S=subscription
Price
N=
#
of
rights
required
to
buy
1
share=#old
shares/#of
new
shares
= ! ! =
share
price
exrights
= (! )/
=
Ex
rights
value
of
a
right
Funds
raised=
S*#new
shares
Dollar
Flotation
cost=
funds
raised
net
proceeds
%
Flotation
Cost=
Dollar
FC/Funds
Raised
Return
on
Portfolio:
! = ! ! + (! ! )
EFN
=

pSR
+
g(ApSR)
=A(g)pSR(1+g)CL(g)
Exact
Fisher
Effect:
(1+Rnom)=(1+Rreal)
x
(1+infl)
! = ! ! + (! ! (= 0))
BASE
CASE
NPV
PV(ATOCF)+(PV(CCATS)+PV(Salvage)+
PV(NWC
Recovered)
CoInitial
NWC
NWC
to
total
assets
=
(current
assetscurrent
liabilities)/total
assets
NWC
Turnover=Sales/NWC
OCF
Basic
=
EBIT+DTaxes
Private
Leverage:
OCF
Bottom
up=
NI+D
Leverage
reduces
value
of
firm
OCF
TopDown=SCostsTaxes
when:
OCF
Tax
Shield=
(SC)(1T)+(D*T)
1 ! < (1 ! )(1 ! )
Analysis
OCF=[(PV)QFC)
X
(1T)]+TD
=
C=corporate
tax
rate
Annuity:
S=private
dividend
tax
rate
Annuity
Due=PMT
PVAF(1+r)
If>
then
increases
!"#
!!! !
If
=
then
indifferent
PVgrowing
Annuity
=
[1
]
!!!
!!!
If
B=S
then
leverage
increases
PVgrowing
perp
=
PMT/rg
firm
value
P/E
=price/EPS
Capital
Budgeting
Alternatives:
P
Index=
PV(cash
flows)/Investment
>
1
NPV
(may
lead
to
wrong
dec.
when
mut.
Ex)
IRR
(IRR>R
=
accepted)
Profit
Margin=NI/Sales
Payback
Ruke
ROA=NI/Total
Assets
Discounted
Payback
rule
Retention
ratio=
pSR
X(1+g)
or
RE/NI
Avg.
Accounting
Return
Std
Dev
on
Calculator:
Capital
Budgeting:
adjust
for
2nd
F,
Mode,0,0,Mode,1,0,
data
enter,
time
value?
Adjust
for
risk?
alpha,
5
=
Provide
information
&
value
Reward
to
Risk=
(ERi
Rf)/Betai
@equilibrium:RTRA=RTRB=RTRp
r^2=portion
of
total
risk
that
is
systematic
Growth
=b
x
ROE
Sustainable=(ROE
X
R)/(1(ROE
X
R))
Internal
Growth:
=pSR/(ApSR)
ROA
X
R)/(1(ROA
X
R))
= (! ! ) + (! ! )
Total
Amnt
raised
=Project
Cost/1WAFC
Capital
Structure
Weights=
MV(Debt)=BondPrice*#bonds/Assets
MV(Equity)=
Price*#shares/assets
MV(PS)=PS
Price*#of
PS/Assets
Unlevered/Levered
Borrowing:
D/E=0.5,
EPS=2.5,
i=10%
D=0.5E,
@
E=2000,
D=1000.
Total=3000,
#shares=3000/20=150,
Expected
Payoff=EPS(Shares)
(1000*0.1)=375100=275,
Expected
Payoff=375+100=475
(lender)
! !!
Stock
Valuation=
! = ! !
Constant
Growth:
! =
!!!
!!
!!!
Supernormal
Growth
=
! =
!!
(!!!)!
/ 1 +
Funds
to
be
Raised
=
Net
Proceeds/1flotation
spread
MV(Before)=#of
old
shares
*
Rights
on
share
price
MV(after)=(Total
*Me)(#of
new
shares*S)
0.010551
@Sustainable
g,
company
can
increase
sales
&
Assets
without
selling
equity.
Debt
can
increase
Calculator
to
Find
IRR
Cfi,2ndf,
CA,ON,data,ON,2ndf,cash,2ndf,CA
Nonconventional
Cash
flows:
use
diff
between
cash
flows
for
each
project
and
use
as
entries
MIRR:
Method
1:
discount
2nd
negative
cash
flow
back
to
Co
Method2:
FV
all
cash
flows
and
add
to
last
negative
cash
flow.3)use
both
methods
simult.
Replacement
of
equipment:
NPV=
Net
Investment
+
PV
(ATOCF)
+PV(net
salvage
value=salvage
of
oldsalvage
of
new)+PV(CCATS,
C=New
costold
salvage)
Setting
Price
on
a
bid:
NPV=0=Capital
spending+PF(Salvage)+addition/
recovery
of
NWC+PV(ATOCF)(S
C)(1T)
+
tax
sield
on
CCA.
Then
find
S
and
Q.
Avg
Account.
Return:
Avg.NI/Avg
Investment(1/2
of
Co,
need
target)
EFN=increase
in
total
assets
addition
to
RENew
Borrowing
Dividend
Growth
Model:
Re=(D1/Po)+g
Days
Sales
in
Inventory=365/Inventory
Turnover
Approximate:
Rnom=Rreal+infl.
Inventory
Turn.
=COGS/Inv.
EAC
=
PV(Costs)/
PVAF
Equally
risky
investments=equally
risky
returns
Homemade
leverage:
assumption
that
individuals
can
lend&
borrow
at
same
rate
as
the
firm