Cost of Retained Eanings Flashcards
Capital Asset Pricing Model (CAMP)
CAMP = R +B (M-R)
Discounted Cash Flow
(Current Dividend x [1+g]) / Current Stock Price] + g
To calculate Growth Rate
Retention Ratio * ROE = Growth Rate
Bond Yield Plus Risk Premium
Pretax cost of long term debt + Market risk Premium
To calculate Market Risk Premium
Market Return - Risk Free Rate = Market Risk Premium
Operating Leverage
Sales - COGS - SG&A = Operating Income (EBIT)
Financial Leverage
EBIT - Interest expense - Income Tax Expense
ROI = Return on Invested Capital
Net Income / Invested Capital
ROE = Return on Equity
Net Income / Shareholder Equity
Profit Margin
Net Income / Sales
Turnover
Net Sales / Assets
if dividend payout increases
Retention rate decreases and Growth decreases
if you reduce your fixed cost
your degree of operating leverage will go down
What is the effect of bond issuance
degree of financial leverage goes up Return of Assets goes down Return on Equity goes down if NI stays flat Debt to total capital will increase Debt to Equity will increase
Times Interest Earned Ratio
EBIT/Int expense
Operating Leverage
is the ratio of fixed cost over variable cost
