Fin 401 Crib Sample

Re = D1/P0 + g P0= D1/(Re-g) Re=Rf+Be(Rm-Rf)

Rd= annual YTM on bond - don’t forget to adjust YTM & coupon - arith average: add up % chngs & find avg rate %chg= (curr-prev)/prev - YTM & cr are always annual

Rp= D/Po

g=renten rat x ROE MVD= # bonds outstd x mkt price per bond (try this method first) MVE= # sh. outstd x mkt price per sh

We= MVE/TMV We= E/(D+E)

MVD = price as % of face val x face value Wd= MVD/TMV Wd= D/(D+E)

MVP= # pref. outstd x price per pref stock

Wp= MVP/TMV

- “most recent div or div just paid” = D1

- “person invests $X in bonds of firm ABC or comm. Sh.” , X=MVD or MVE

- book value of debt = fac val of all outstd debt - “embedded cost of X”, X= coupon rate - ”comp issued 30 yr bond 7 yrs ago”, N=23

-”6% pref stock outstd currently selling for $104 per ch”, Rp= 6/104 - “pays 7% of 100 par value, curr selling for 104 per sh” Rp= 0.07x100 / 104

Finding NAL 1. initial investment (+) 2. PV of lease pmts (-) - convert pmts to A-tax - switch mode to BGN or END (assume END if not given) 3. PV CCA TS (I x d x T / d+r) (1+.5r / 1+r) - (SV x d x T / d+r) (1 / (1/1+r)^N ) 4. PV sal (-) 5. NAL= I - PV lease pmt - PV CCA TS - PV sal +/- misc CFs Finding BE lease pmt aka “pmt where the lessee & lessor are indifferent to lease” or “max pmt that is acceptable to the lessor” 1. Set NAL=0 & solve for PV lease pmt 0= cost - PV lease pmt - PV CCATS - PV sal PV lease pmt = cost - PV CCATS - PV sal 2. Input PV lease pmt, N, A-tax i into cal & solve for PMT - don’t forget to convert to B-tax pmt (= A-tax / 1-T)