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25 Cards in this Set
- Front
- Back
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Average Accounting Rate of Return |
= Average Net Income / Average Book Value |
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Profitability Index |
PV of Future Cash Flows/Initial Investment Invest when greater than 1 |
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IRR |
The rate of growth a project is expected to generate |
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Weight of debt in target capital structure |
calculated by dividing the target D/E ratio by (1+D/E) |
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WACC |
=(Wd)(Rd)(1-t)+(Wp)(Rp)+(We)(Re) |
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How to calculate the current price of preferred stock? |
Vp = Dp/Rp Price of Preferred Stock = Preferred Stock Dividend per share / cost of preferred stock |
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Calculate the CAPM |
Re = Rf + Beta*(equity risk premium) |
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Equity Risk Premium |
Expected return on the market - Risk free rate |
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Required rate of return on common equity |
Re = (D1/P0) + g Required rate of return on common equity = Next Year's Dividend / current market value of security + firm's expected constant growth of dividends |
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Calculate G, the firm's expected constant growth rate of dividends |
(1- d/EPS) x ROE, or earnings retention rate x ROE |
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Unlevering Beta |
= equity levered beta / (1+ post tax debt to equity ratio) |
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Degree of Operating Leverage |
% change in operating income / % change in units sold or contribution margin / contribution margin - fixed operating costs |
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Degree of Financial Leverage |
% Change in Net Income / % change in Operating Income |
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Degree Total Leverage |
= % change in net income / % change in # of units sold |
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Breakeven Point |
Fixed Operating Costs + Fixed Financial Cost / (Price per unit - variable cost per unit) |
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Chapter 11 vs Chapter 7 Bankruptcy |
Chapter 11 is a temporary restructuring which allows company to reorganize capital structure and emerge from bankruptcy. Chapter 7 allows for orderly settlement of creditors claims. The original business ceases to exist. |
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Drag on liquidity vs pull on liqudity
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A drag on liquidity is a delay on cash coming into the company. A pull on liquidity is when cash is leaving the company to quickly. |
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Float Factor |
Average Daily Float / Average Daily Deposit # of days it takes for a check to clear |
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Average Daily Deposit |
Total amount of check deposited / number od days |
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Line of Credit Costs |
(Interest + Commitment Fee) / Loan Amount |
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Banker's Acceptance Cost |
Interest / Loan Amount - Interest |
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Primary Sources of Liquidity |
readily available liquidity resources such as cash balances and short-term funds. |
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Cost of preferred equity |
dividend / preferred share stock price |
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Revolver Line of Credit
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can be used for multiple years once initially set up |
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Bankers' Acceptance
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short term debt instrument issued by a firm that is guaranteed by a commercial bank. |
