Accounting Formulas: Gain/Loss on Equipment (Sale) = Market…
Accounting Formulas: Gain/Loss on Equipment (Sale) = Market Value – Book Value (a positive is a gain, a negative is a loss). A gain is a positive cash flow. Note that the book value of piece of equipment is equal to its original capitalized cost less its accumulated depreciation. Finance Formulas: WACC = (Cost of Debt * (1 -t)) * (Total Debt/(Total Debt + Total Equity)) PLUS (Cost of Equity* (Total Equity/(Total Debt + Total Equity))) Cost of Debt = Risk Free Rate + Default Risk Premium Cost of Equity = Risk Free Rate + (Beta * Market Risk Premium) Market Value Added (MVA): Formula not provided. You need to know this one. Stock Valuation Models: Zero Growth Rate for Dividends into Perpetuity: Price = Div0/r Constant Growth Rate for Dividends into Perpetuity: Price = Div1/(r-g). OR. Price = (Div0 * (1+g))/(r-g) Growth Opportunities P = (EPS/R) + NPVGO Cash Flow Models: Annual Firm Level Free Cash Flow: FCF = (EBIT * (1-t)) – Capex – Change in WC + Depreciation OR FCF = (EBITDA – Depreciation expense) * (1-t) + Depreciation – Capex – Change in WC Firm Terminal Value at year N: = (EBIT (n) * (1+g) * (1-t))/(r-g) (note similarity to constant growth dividend model) Net Present Value/Future Value/IRR/Payment Annuities: Use Excel macros Payback Period/ Discount Payback Period: No formulas — use methods shown in class. Profitability Index: PI = PV of Benefit Stream (Free Cash Flows)/Initial Investment NET Debt = Total Debt – Cash (and Cash Equivalents)
Read Details