BAR 2 Financial Management Flashcards
Using CAPM, required rate of return ie cost of equity ie cost of retained earnings =
Risk free rate + Beta *(Market return - risk free rate)
Using DCF method, cost of equity =
Expected dividend/ current share price + growth rate
Debt ratio=
total debt ie liabilities / total assets
Time Interest Earned =
EBIT (Earnings before Interest and Taxes) / Total interest expense or
Pretax income = income after tax / ( 1 - tax rate)
EBIT = pretax income + interest.. than follow regular formula
EOQ=
[(2 × monthly sales × order cost)/monthly carrying cost per unit]
In APR format, what is benefit to pay each invoice?
[(360 days in year /(payment terms - days when paid)) * discount % / 100% - discount %] - % rate money borrowed
weighted-average cost of capital (WACC)
=Debit + Equity
Debt = debt market value $ / (debt market value + equity market value) * after-tax cost of financing of %
Equity = debt market value $ / (debt market value + equity market value) * % cost of equity capital
Cost of preferred shares
= Dividends paid / Net proceeds
Dividends paid = $ par value * % dividends
Net proceeds = $ selling price - $ floatation
Using constant growth discount mode, what is price to pay?
1) D(t+n)= Pt *(1+growth rate)^2
2) Pt= D(t+n) / (R-G)
Pt = Current price (price at period “t”)
D(t+1) = Dividend one year after period “t”
R = Required return
G = Growth rate
expected return on stock
= ($expected rate - current $ price + $expected dividend) / current $ price
FCF
= NI + noncash expenses - increase in working capital - capital expenditures
Using zero growth model, what is price
Dividend / Growth rate
P/E ratio
= market price / EPS
Cost of Retained Earnings
[ (ordinary dividend per share * (ordinary dividend % + 1)) / common stock per share ] + ordinary dividend %
Cost of preferred stock
[ % preferred stock * preferred stock par value $ share] / $ preferred stock per share
After-tax cost of debt
pre tax cost * (1 - income tax annual rate)
Total Market value of common stock
$ common stock in B/S / common stock par value $ share * common stock per share $
Total Market value preferred stock
$ preferred stock in B/S / preferred stock par value $ share * preferred stock per share $
Total market value of bonds
$ bonds in B/S * bonds trading at $ / $1000
WACC
(Cost of RE * weight RE) + (cost of preferred stock * weight of preferred stock) + (post tax cost of bonds * weight of bonds)
Total book value of equity
= net assets = total asset - total liab
Market capitalization
common stock market value % per share * ( $common stock at part in B/S / common stock nominal par value per share )
Total value of equity using sector P/E
$ NI * P/E ratio
Total value of equity using dividend discount model
[ total dividends * (1+ growth rate of dividends)] / risk free rate + (beta * market risk premium) - growth rate of div %
Total Market value of bonds
Bonds $ in B/S * bonds current market value $ per bond / 1,000
