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Adv CF > Midterm > Flashcards

Midterm Flashcards

1
Q

PEm

A

Stock Price / EPS

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2
Q

b in PEf form

A

Dividend ratio

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3
Q

OCF

A

EBIT*(1-Tc) + Depr

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4
Q

NCS

A

End NFA - Beg NFA + Depr

NFA = Gross FA - Acc Depr

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5
Q

chNWC

A

Current Assets - Current Liab [take diff in two years]

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6
Q

FCF

A

OCF - NCS - chNWC

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7
Q

TV w/ ra [used for LBO]

A

CF(n-1)*(1+g) / (ra-g)

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8
Q

TV w/ WACCme

A

CF(n-1)*(1+g) / (WACCme-g)

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9
Q

PV of Future Tax Shields

A

TVra - TVwaccme –> discount using rd

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10
Q

Loan payment steps

A

1) use PV annuity form to calculate payments (equal pmts)
2) each period, interest = balancerd
3) tax shields = interestTc

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11
Q

Valuation, price to offer shareholders

A

Only use equity value of firm! then divide by # shares

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12
Q

LBO APV

A

Base Case + PVTS + PVTSterm + cash - ST liab

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13
Q

MM Formula Use

A

w/o tax = constant D/V ratio

w/ tax = constant level of debt + constant CF + short-term projects

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14
Q

Salvage value

A

After tax salvage value = MV - [Tc*(MV-BV)]

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15
Q

CAPM rf’s

A

first rf = spot rate

mkt risk prem = historical rate (same a market returns)

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16
Q

When to use WACC

A

Proj related to firm’s operations + has same average risk + company plans to use same D/E ratio

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17
Q

Diff between WACC vs APV

A 
WACC = Tax shields through disc rate; assumes constant D/E
APV = Calc tax shield directly; allows D/E to change
18
Q

How LBOs create value?

A

reduce taxes, manager incentives, misc cost adv

19
Q

business risk v financial risl

A

biz risk = ra; fin risk = re-ra

20
Q

LBO - value of firm prior to LBO

A

Equity + Debt!

21
Q

Types of leases

A

Full-serv vs net lease
Sale + lease back vs direct
True vs non-true
Operating vs financial

22
Q

Dubious motives to lease

A

Avoids capital expen limits
Leasing preserves capital
Provides off-balance sheet financing
Makes firm look more profitable

23
Q

OCF Leases

A 
Sales - 0
- Lease Cost
- Depreciation
= EBIT
OCF = EBIT + Depr - (EBITneg*Tc)
24
Q

Base case NPV

A

Perp CF / (r-g)

25
Q

PVTS

A

Interest*Tc

26
Q

Impact of personal taxes

A

(1-Td) > (1-Tc)(1-Te) – better to use debt

1-Td

27
Q

When to use T*

A

If (1-Td) > (1-Tc)(1-Te) – debt will add value

Added value is now TB(L) = Debt * T* = “Effective tax shield of debt”

28
Q

PV(AB)

A

PV(A)+PV(B)+Value Created

29
Q

Gained by Acquirer

A

PV(AB)-PV(A)-Amount Paid

30
Q

Gained by Targer

A

Amount Paid - PV(B)

31
Q

Bi-modal Options

A

SHP + B(1+rf) = Value of call (high)

SLP + B(1+rf) = Value of call (low)

32
Q

X (convertibles)

A 
n = # new shares created 
Xw = exercise price/share
Alpha = n / (n+share oustanding)
X = (1-alpha)*n*Xw
33
Q

P (convertibles)

A 
Y = Current Price * Shares outstanding
P = alpha*Y
34
Q

Stock price effect (convertibles)

A

E(prior) = Price * shares
New E = E(prior) - option granted value
New E / shares = New stock price
Take diff of stock price before and after

35
Q

5 Mkt Imperfections (cap struct)

A

Corp Taxes – Cost of FD – Personal Taxes – Agency Problems – Asymmetric Info

36
Q

WACC (inc/dec?) with more debt than equity?

A

Decrease

37
Q

T(D) / T(E)

A 
T(D) = Personal tax on interest earnings
T(E) = Dividends and Cap Gains Tax
38
Q

Agency Conflicts

A

1) Risk shifting (more debt = bad)
2) Mngr Risk Averse (more D = bad)
3) FCF Problems (more D = Good /discipline)

39
Q

Trade-off Theory

A

VL=VU + TB(L) - DC(L) - value lost excess risks - value lost manger risk + value gained from discipline

40
Q

Pecking Order Theory

A

Cash -> Debt -> Equity (most costly to Share Price)

41
Q

Why Do Dividends Matter? (7)

A

1) Pot impact on investments
2) Corp vs pers tax rate
3) Dividend vs CG tax rates
4) Clientele effect
5) Dividends act as signal
6) Issuing stock = expensive
7) Agency conflicts

42
Q

B-S Inputs [C/P]

A 
Value of asset (P) [+/-]
X [-/+]
Time to exp (T) [+/+]
Risk free rate (r) [+/-]
Volatility of stock price [+/+]

Adv CF (1 decks)

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