Exam Cheat Sheet

(UNIT ONE)Spot ratePriceYTMDiscount factors (1/1+r^t) must decrease with maturity, or arbitrage 1+real= 1+Nominal1+inflation * Using real Don’t include inflation if CF * Using nom Include inflation in CF | 1+nom=1+real1+infl which states that real is constant * REAL rates can be negative (nominal not usually—could hold cash and 0RISKS 1. Inflationall 2. MaturityLT debt 3. DefaultNon-treasury 4. Liquiditycorp debt (sm mkt)Call/optcorp debt |

(UNIT TWO)ALL EQUATIONS CAN SUBSTITUTE D/V AND E/VRe-lever equity betaUn-lever/Re-lever Process 1. Calculate the BUA of any given companies 2. CAPM gives UNLEV CoC 3. Use given Bd to calculate rD (or YTM) 4. Use formula to calculate Be from Bua 5. Calculate Re from CAPM 6. WACC of LEVERED firm | Oper. Lever= Fixed CostsProject Value , when higher this results in higher asset BetaDeg.Op.Lev.= % Change Profits% Change Sales=1+Fixed CostsProfits , when high have high breakeven ptWorking Capital = ST assets – liabilities Cost of Debt * Calculate YTM of outstanding debt (mult x2 if using semi-annual coupon bonds) * Use bond ratings and comps * Beta of Debt = zero or very low (CAPM) * Can use rD to back into BdebtCost of Preferred Equity * Generally fixed dividend * P0=Divr so rPE=DivPoCost of Common Equity * CAPM – captures diversifiable risk * DCFRisk Free Rate * 10 year treasury as a proxy * If given rate including risk premiumsubtract it out! |

Edison Electric NotesVua=V-PV(TS) = D+E-TDVOLD=E+DVNEW= VOLD + Chg. Tax ShieldEqNEW = VNEW – D * Note that shareholders got EqNew + Cash payout * Divide by original # of shareholders to get price Post-restructure Beq is found using equation above (w/Bd by CAPM)Post-restructure WACC based on VNEW (including TS) * Both Beq and Bd went up! * WACC went down due to shift of tax benefit Rev-Exp-Dep=EBIT-Tax=NOPAT+Dep=OCF+/- NWC chg.-CAPEX=FCF |   |   |

NWC | Debt |

PP&E | Equity |

Growth | |

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XS Cash | Debt |...