Further Notation

Question 1

Asset Beta calculation Q9

Answer 1

Take individual asset beta of each company, multiply by the equity values to get totals

Divide the Total/Total Equity Value

Take this Asset beta into the CAPM to get Ke

Question 2

Total Ke+Kd if using Freecashflow to WACC method Q9

Answer 2

Once you’ve got the Ke using CAPM

KEMarket weighting of debt PLUS
I(1-t)Debt weighting

Question 3

PE Ratio Calcs Q48

Answer 3

P/E Ratio: Market Cap/Earnings or Share price/EPS
Value of a firm: Earnings*P/E Ratio

When adjusting down - use the P/E Ratio to adjust down

Question 4

Tax relief on a subsidised Loan Q35

Answer 4

Loan Value BAREInterest RateTax rate*Annuity Factor

Question 5

Subsidised Loan Laving Q35

Answer 5

Loan Value BAREInterest rate savingNet of tax*Annuity Factor

Question 6

Share for Share exchange required Q10

Answer 6

Subsidiary value after acquisition/parent share price post acquisition

Question 7

Mixed Offer

Answer 7

Total Consideration MINUS original share price of sub = gain
Gain is calculated there

Value of gain = Original shares in issue of subsidiary*Gain

Question 8

VaR

Answer 8

VaR How to:

Standard Deviation of cashflowConfidence interval valueSQRT of n years of project

Question 9

MacAuley Duration

Answer 9

Avg time to recover initial investment if IRR used, or NPV is CoC is used

Excluding investment:
Sum of PV T1-*Year
/PV
All totalled up

Question 10

Black Scholes in exam question

Answer 10

Exercise Price - Capital Expenditure Pe: 15
Share price Pa: Cap Exp*DF of year e.g. 3 year

If this returns say 1.36 as a call. The NPV is 1.36m
Minus Negative NPV