Formulas

Question 1

Cost of Equity

Answer 1

CAPM = Rf + Levered B(Equity Risk Premium)

Question 2

Un-Levering Beta

Answer 2

Levered B / (1+ (1-T)(D/E))

Question 3

Re-Levering Beta

Answer 3

Unlevered B*(1+ (1-T) (D/E))

Question 4

Gordon Growth Method

Answer 4

Final Year FCF* (1+g) / (r-g)
*r = discount rate (WACC for FCFF and Cost of Equity for FCFE)
*g = terminal growth rate (conservative like GDP or Inflation)

Question 5

Unlevered FCF (FCFF)

Answer 5

EBIT*(1-T) + Non-Cash Charges - Changes in NWC - CapEx

Question 6

Levered FCF (FCFE)

Answer 6

Net Income + Non-Cash Charges - Changes in Operating Assets and Liabilities - Capex - Mandatory Repayments

*Levered FCF (FCFE) takes out interest payments via NI and mandatory debt repayments. As a result, it is reflective of the CF available to equity holders only

Question 7

WACC

Answer 7

(Cost of Equity% Equity) + (Cost of Debt% Debt) (1-T)

Question 8

EPS to Unlevered FCF

Answer 8

EPS*Shares Outstanding = NI + Tax expense + Interest Expense = EBIT * (1-T) = NOPAT + Non-Cash Charges - Changes in NWC - Capex = Unlevered FCF

Question 9

Unlevered FCF to Levered FCF

Answer 9

Unlevered FCF - Interest Expense - Mandatory Debt Repayments

Question 10

NOPAT

Answer 10

Net Operating Profit After Taxes
Net Income + Interest Expense + Tax Expense +/- Non-Operating Gains or Losses = EBIT (1-T) = NOPAT

Question 11

Revenue to FCF

Answer 11

Revenue - COGS - SG&A = EBIT * (1-T) = NOPAT + Non-Cash Charges +/- Changes in NWC - Capex = FCFF

Question 12

Cost of Equity (Alternative Formula)

Answer 12

Cost of Equity = (Dividends per share / Share Price) + Growth Rate of Dividends

Question 13

Earnings Per Share (EPS)

Answer 13

Net Income/Shares Outstanding

Question 14

Multiples Method (Terminal Value Calculation)

Answer 14

Terminal Value = Final Year EBITDA*Exit Multiple
*Multiples are derived from comparable companies and precedent transactions