E Formulas Flashcards
(119 cards)
1
Q
Annual interest
A
Coupon rate × nominal value
2
Q
Irredeemable loan notes ex-interest market price?
A
Annual interest payment / Bondholders’ required return
3
Q
if debt is irredeemable, what is the cost of debt to the company?
A
Debtholders’ required return × (1 − corporate tax rate as a decimal)
4
Q
Effective annual cost of debt?
A
(1 + semi-annual cost)^2 -1
5
Q
Value of geared company?
A
Value of equity + Value of debt
6
Q
CAPM formula?
A
Risk-free return + (beta of the investment * (expected return from the market portfolio - risk-free return))
7
Q
Debt to equity?
A
((Non-current liabilities)/Capital + reserves) * 100
8
Q
Debt to total capital?
A
((Non-current liabilities)/Capital Employed) * 100
9
Q
Operating gearing (costs)?
A
(Fixed operating costs / Total operating costs) * 100
10
Q
Operating gearing (profit)?
A
Contribution / Operating profit
11
Q
Interest coverage
A
Operating profit / Interest expense
12
Q
Cash flow coverage
A
(Cash from operating activities + income taxes paid) / Interest expense
13
Q
Annual dividend for 12% preference share?
A
12% × nominal value
14
Q
Calculate cost of equity “geared” (WACC)?
A
((Dividend just paid * (1.dividend growth %)) / share price) + dividend growth %
15
Q
Calculate post-tax cost of debt (WACC) irredeemable?
A
Pre tax % * (1 - corporation tax %)
16
Q
Family members stated that they require an annual return of 12% (equity or debt)
A
Equity
17
Q
Bank loan at an annual interest of 8% (equity or debt)
A
Interest bearing liabilities
18
Q
Value of a right per new share?
A
TERP - subscription (issue) price
19
Q
Value of a right per existing share?
A
Value of a right per new share / current market price
20
Q
Return required by debt investors (irredeemable loan notes)
A
Interest / (ex interest)
21
Q
Cost to the company (irredeemable loan notes)
A
(Interest * (1 - corporation tax)) / ex-interest
22
Q
Cost to company (redeemable loan notes)
A
IRR of ex-interest AND post-tax interest AND (post-tax interest + redemption value)
23
Q
Redemption value (redeemable loan notes)
A
Nominal value * premium %
24
Q
Post-tax interest (redeemable loan notes)
A
% loan note redeemable * (1 - corproation tax %)
25
Effective annual cost of debt?
(1.IRR^2) - 1
26
Each interest rate payment in semi-annual interest payments?
Half the coupon rate
27
What is profit before income tax?
Operating profit - interest expense
28
Issue price of each commercial paper?
Nominal value / (1 + (rate of return % * (issue period/length of year))
29
When the conversion value is greater than the redemption value per loan note?
Shareholders choose the option that maximises their growth, in this case this is the conversion value
30
How many shares are in issue (when $0.50 per share nominal)
Share capital / 0.5
31
Issue price when there is a 30% discount? (TERP)
Current share price * (1 - discount %)
32
Humber of shares to be issued (TERP)
Initial investment / Issue price
33
When number of shares issued is 14 million and current number of shares is 70 million. How can this be expressed as a rights issue?
1 to 5 rights issue
34
Calculate TERP for a 2 to 5 rights issue?
((5 * current share price) + (2 * rights issue price)) / (5+2)
35
Calculate TERP for a 1 to 5 rights issue?
((5 * current share price) + (1 * rights issue price)) / (5+1)
36
If equity finance is used, a 1 for 5 rights issue will be offered to existing shareholders at a 20% discount to the current ex-dividend share price of $5.00 per share
What is the TERP?
Rights issue price per share: $5 * 80%
(5 × current share price) + (1 × rights issue per price) / (5 + 1)
37
How to get rights issue basis (e.g. 1 to 4) if it's not given in the question?
Number of shares issued : Number of shares currently in issue
38
Comvertible loan notes choice?
Redemption at some future date (Redemption value)
Conversion into a predetermined number of equity shares (Forecast conversion value)
39
A company has 5% $100 loan notes in issue, which are redeemable at nominal value in eight years
What is the redemption value?
Redemption price + interest for year 8
40
The company's equity shares are currently trading at $6.50 per share, which is expected to increase by 6% a year. Each loan note is convertible after seven years into 11 equity share
What is the conversion value?
Ex-div share price * (1.06^7) . Get to 2 decimal places then multiply by 11
41
Forecast share price calcuiation?
EPS * P/E ratio
42
P/E ratio?
Market price / EPS
43
Capital gain (financed by equity)
Revised share price - TERP
44
Capital gain (financed by debt)
Revised share price - current market price
45
EPS?
Profit after tax / Number of shares
46
Revised share price?
Revised EPS * current P/E ratio
47
Number of shares increased from a 1 to 4 rights isuse when there wer erogiinally 12 shares
12 + (12 * 1/4)
48
What is the TERP formula for a rights issue of 1 to 4?
(4 * current market price) + (1 * rights issue per price) /
49
CAPM formula?
Risk free return + (beta of the investment * equity market permium)
50
Equity market premium formula?
Expected return from the market portfolio - risk free return
51
When is an asset beta the appropriate beta to use?
If the company is ungeared
52
What does asset beta only measure?
Measures market risk without systematic risk
53
What does equity beta cosnist of?
Asset beta and financial risk
54
Steps to find a specific cost of capital in a new business area?
Find proxy equity beta => degear proxy equity beta to get asset beta => regear the asset beta using company's capital structure to get equity beta => Put new equtiy beta into CAPM to get specific cost of capital in new business area
55
What types of values are needed when calculating specific cost of capital?
Market values
56
What should I look for initially when a question says market value-based gearing?
Split into debt and equity
57
DVM with constant dividends?
(Cum div - ex div) / ex div
58
DVM with dividend with constant growth?
((Dividend * (1 + growth rate)) / ex-div) + growth rate
59
Ways to calculate g in DGM?
Extrapolation of past dividends
Gordon's growth model
60
Extrapolation of past dividends formula?
Starting dividend * (1+g)^changes = Last dividend
Then use DGM
61
Get cost of equity from extrapolation of past dividends formula?
Use DGM
62
Gordon's Growth Model formula?
Proportion of profits retained * rate of return on those retained profits (ROCE)
Then use DGM to get cost of equity
63
Proportion of profits retained (Gordon's Growth model)
Retained profit / post-tax profit
64
Rate of return on those retained profits (ROCE) (Gordon's Growth model)
Post-tax profits / Net assets
65
K_e symbol in DVM meaning?
Cost of equity
66
P_0 symbol in DVM meaning?
Ex-div or ex-int market price
67
Dividend from preference shares?
Nominal value * % of preference shares
68
K_d symbol in DVM meaning?
Denote the pre-tax cost of debt
69
Return required by debt investors (cost of irredeemable debt formula)?
Interest / ex interest
70
Cost to the company (cost of irredeemable debt formula)?
Post-tax interest / ex interest
71
D_o meaning?
Current dividend
72
D)n meaning?
Dividend n years ago
73
Ways to calculate K_e? (Cost of equity)
DVM, DGM and CAPM
74
Ways to calculate K_d? (Cost of debt)
Irredeemable, redeemable, non-traded
75
Ways to calculate K_p? (Cost of debt)
Preference shares
76
Calculate K_e in DVM?
K_e = d / P_o
77
Calculate K_e in DGM?
K_e = ((d_o * (1+g)) / P_o) + g
78
D_o meaning?
The current dividend
79
Calculate K_d in irredeemable?
(i * (1 - t)) / P_o.
P_o represents ex interest
80
Calculate K_d in redeemable?
IRR
81
Calculate K_d in non-traded?
i * (1 - t)
82
Calculate K_p in DVM?
K_p = d / P_o
83
i meaning in cost of debt?
Annual interest payment
84
What form of k_d is a bank loan?
Non-traded debt
85
Par value of a redeemable loan note?
100
86
When is conversion value (CV) only relevant in a loan note?
If it is convertible
87
Calculate market value of shares at (25c)
($ / 25c) * market price
88
V_D in WACC?
Total market value of debt
89
V_e in WACC?
Total market value of equity
90
How to calculate b in Gordon Growth when company has 80% payout ratio?
1 - 0.8
91
A company has a market price per share of $30, a forecast dividend per share after one year of $3 and an expected dividend growth rate of 10% thereafter. What equation to use?
K_e = ((d_o * (1+g)) / P_o) + g
92
A way of getting EPS from dividend cover?
Dividend * dividend cover
93
What does P_o mean?
Share price
94
Dividend yield?
Dividend per share / share price
95
How is dividend yield represented in DGM equation?
D_o / P_o
96
When question gives the dividend after one year is expected. How does DGM formula change when calculating k_e?
(1+g) is removed
97
Does K_d represent pre-tax or post-tax?
Pre-tax
98
Get post-tax K_d?
K_d * (1 - T)
99
Does non-traded debt (e.g. bank loan) have a market value?
NO
100
Another name for asset beta?
The ungeared beta (company only has assets, not debt)
101
What is a proxy beta?
Equity betas of proxy companies
102
What does the asset beta only show?
Only the business risk, whilst equity beta shows the financial and business risk
103
Formula to regear a beta?
CAPM
104
Value of a right calcualtion in a 1 to 4?
4 * value of rights per share
Right issue price is TERP - value of a right
105
Theoretical value of one right per existing share in a 1 for 3 rights issue?
(TERP - rights issue per share) / 3
106
Calculate total shareholder return?
((Change in share price over the period + dividend for the period) / (share price at start of period)0 * 100
107
Value of share price (using dividend yield)
Dividend per share / dividend yield
108
What beta to use if company pays of all debt?
Asset beta, as this eliminates the existing financial risk faced by its shareholders
109
What does R_m stand for?
Required annual return on the market portfolio
110
Project-specific cost of equity when there is no regearing
The CAPM
111
Asset beta equation?
((V_e / (V_e + V_d(1-T)) * B_e) + ((V_d(1-T) / (V_e + V_d(1-T)) * B_d)
112
Average gearing ratio is 1:4 represents?
1 represents debt and 4 represents equity
113
When question says calculate project-specific cost of equity?
Calculate B_e (equity beta) in the asset formula. B_a should already be given. Then use CAPM to find the cost of equity
114
What is menat by regearing?
Getting the B_e when the B_a has already been calculated
115
What is the beta that needs to be degeared?
Average equity beta for a sector of companies or proxy company
116
What is the beta that needs to be regeared?
The equity beta for the specific company
117
When a company is an all equity financed company. What is the asset beta the same as?
The equtiy beta, therefore no regearing
118
WACC formula?
(V_e / (V_e + V_d)) * K_e
+
(V_d / (V_e + V_d)) * K_d(1-T)
119
When bank loan has variable interest rate, what is the cost of debt?
Same as loan notes
