PART 5 Flashcards
Value Creation, CAPM & BETA
1
Q
Value Creation when:
A
ROCE > COCE or ROCE > WACC
2
Q
EVA = Economic Value Added
A
= (ROCE-COCE)*Capital Employed
= NOPAT - COCE*Capital Employed
3
Q
ROE Leverage
A
= ROCE + [ ROCE- Cost of Debt x (1-t) ] x Debt/Equity
4
Q
CAPM: R(S)
A
= RF + Beta(S)Market Premium = RF + Beta(S)(Market Return - RF)
- only valid if the the investor is diversified
- Note difference in Market Premium vs Market return
5
Q
Asset Beta: Beta(A)
A
= Beta(E)EV(EV+DV) + Beta(D)DV(EV+DV)
6
Q
Beta(A) Variant
A
= Beta(E) / (1+(1-tax rate)*(debt/equity ratio))
7
Q
BETA = 1
A
Market
8
Q
BETA > 1
A
More volatile than market
9
Q
BETA < 1
A
Less volatile than market
