CorpFinance Flashcards
CAPM (Capital Asset Pricing Model)
The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk, or the general perils of investing, and expected return for assets, particularly stocks.
ERi =Rrf + βi * (ERm − Rrf )
where:
ERi =expected return of investment
Rrf =risk-free rate
βi =beta of the investment
(ERm − Rrf)=market risk premium
βi>1 - asset is riskier than the market; βi<1 asset is less riskier that the market
https://www.investopedia.com/terms/c/capm.asp
WACC
Weighted average cost of capital (WACC) represents a firm’s average after-tax cost of capital from all sources, including common stock, preferred stock, bonds, and other forms of debt. WACC is the average rate that a company expects to pay to finance its assets.
GGM (Gordon growth model)
The Gordon growth model (GGM) is a formula used to determine the intrinsic value of a stock based on a future series of dividends that grow at a constant rate.
P = (D1)/(r – g)
where:
P = Current stock price
g = Constant growth rate expected for dividends, in perpetuity
r = Constant cost of equity capital for the company (or rate of return)
D1 = Value of next year’s dividends
https://www.investopedia.com/terms/g/gordongrowthmodel.asp
DRP (Dividend Payout Ratio)
Ratio of the total amount of dividends paid out to shareholders relative to the net income of the company
Dividend Payout Ratio = Dividend
NPV
IRR
MIRR
DPP
PI (Profitability Index)
ARR
PB (Pay Back)
APV
EVA
ROV
FCF
