F Formulas

Question 1

NBV method balance sheet equation?

Answer 1

Assets - liabilities

Question 2

NRV method for estimating business’ liquidation value?

Answer 2

Estimated net realisable values of assets - liabilities

Question 3

What is the net replacement cost?

Answer 3

Estimated depreciated replacement cost of net assets

Question 4

What is P/E ratio?

Answer 4

Market price per ordinary share / Earnings per share

Market capitalisation / (ordinary shares * EPS ratio)

Question 5

What is EPS ratio?

Answer 5

(PFY - Preference dividends) / Number of issued ordinary shares

Question 6

Ordinary share price?

Answer 6

P/E ratio * EPS

Question 7

Value of company?

Answer 7

P/E ratio * (PFY - Preference dividends)

Question 8

Market value per share?

Answer 8

Recent EPS * average PE ratio

Question 9

Number of issued shares?

Answer 9

Share capital / nominal value per share

Question 10

Value of company when average price earnings ratio is given in the question?

Answer 10

Market value per share * Number of issued shares

Question 11

Earnings yield?

Answer 11

(EPS / Market price per share) * 100

Question 12

Ordinary share price? (from earnings yield)

Answer 12

EPS / Earnings yield

Question 13

Constant dividend growth?

Answer 13

(Most recent dividend * (1 + dividend growth rate)) / (Required return of equity investors - Current share price)

Question 14

Constant dividend (no growth)?

Answer 14

Current dividend / Required return on equities in this risk class

Question 15

Constant dividends for five years and then growth of 5% per year to perpetuity formula?

Answer 15

PV of five years’ dividends + PV of growing dividend from year 6 onwards

Question 16

PV of five years’ dividends?

Answer 16

Current dividend * cumulative discount factor years

Question 17

PV of growing dividend from year 6 onwards

Answer 17

(Most recent dividend * (1 + dividend growth rate)) / (Required return of equity investors - Current share price)

*

1/(1+required returns on equities in this risk class^number of years)

Question 18

Constant followed by sale in 5 years?

Answer 18

PV five years’ dividends + PV of sell price in five years’ time

Question 19

PV of sell price in five years’ time

Answer 19

Sell price * (1/(1+required returns on equities in this risk class)^5

Question 20

Value of equity in discount cash flow basis?

Answer 20

Value of assets − Value of debt

Question 21

Market capitalisation?

Answer 21

Number of issued ordinary shares × market price per share

Question 22

Market price of each preference share?

Answer 22

Annual fixed dividend / Required return

Question 23

Annual fixed dividend preference share?

Answer 23

Nominal value * % preference shares

Question 24

Market price of each loan note?

Answer 24

Annual coupon / Required return

Question 25

Annual coupon?

Answer 25

Loan note % * nominal value

Question 26

Market price of loan note?

Answer 26

PV of the coupon + PV of the redemption price

Question 27

PV of the coupon?

Answer 27

Annual coupon * Applying the "Number of years" annuity factor at "bond's yield to maturity".

Question 28

PV of the redemption price?

Answer 28

Redemption price * Applying the "Number of years" discount factor at "bond's yield to maturity

Question 29

What is meant by D_o?

Answer 29

The most recent dividend

Question 30

Value of a share DVM?

Answer 30

(D_o * (1+g)) / (k_e - g)

Question 31

What does CAPM calculate?

Answer 31

The k_e

Question 32

Value of a share when there is no growth in dividends?

Answer 32

D / k_e

Question 33

Get retention ratio from payout ratio?

Answer 33

1 - payout ratio

Question 34

PFY using EPS?

Answer 34

EPS * shares in issue

Question 35

What does it mean when a company is ungeared?

Answer 35

The company has no debt. No need to regear. Use CAPM to get cost of equity

Question 36

Can the beta for a geared company be used for an ungeared company?

Answer 36

No because a geared beta is larger than an ungeared beta. So it needs to be degeared

Question 37

Market value in convertible bond?

Answer 37

PV of future interest payments + PV of the forecast conversion value or redemption value (whatever is higher)

Question 38

Floor value in convertible bond?

Answer 38

PV of future interest payments + PV of the redemption value

Question 39

Conversion premium in convertible bond?

Answer 39

Market value - Current conversion value

Question 40

Expected share price in five year's time (forecast conversion value) (convertible bond)

Answer 40

Shares * Current share price * 1.growth_rate^number of years

Question 41

Current conversion value?

Answer 41

Share price * amount of ordinary shares

Question 42

A company has 7% loan notes in issue which are redeemable at their nominal value of $100 per loan note in eight years. Alternatively, each loan note is convertible after seven years into 11 ordinary shares What should happen to the redemption value? (When trying to work out if conversion value or redemption value should be used)

Answer 42

Multiply redemption value by DF for 1 year. As the difference between 8 and 7 is one year If redemption value is higher than conversion value, use redemption value without the discounting. If redemption value used in final working, DF is for 8 years. If conversion value, DF is for 7 years

Question 43

Fernwell wants to buy shares of Gurst Co in two years. How to calculate dividends?

Answer 43

Dividend per share * (dividend growth rate)^3

Question 44

Calculate monetary value of return?

Answer 44

Share price one year ago * TSR

Question 45

What does it mean for the minimum share price at which investors would convert their loan notes?

Answer 45

Divide PV of fllor value by number of shares

Question 46

What type of coupon is used when calculating market value of a loan note?

Answer 46

Pre-tax, not post-tax

Question 47

When calculating cost of equity in DGM?

Answer 47

Denominator is always ex-div

Question 48

Calculate current earnings?

Answer 48

Shares in issue * earnings per share

Question 49

Get share price in 3 years time?

Answer 49

(Dividend in year 4)/(cost of equity - growth rate) then multiply by discount rate for 3 years

Question 50

When question says market capitalisation?

Answer 50

Look for ordinary shares

Question 51

Value of equity calculation?

Answer 51

Earnings (e.g. PFY)/earnings yield

Question 52

What is earnings yield the recirpocal of?

Answer 52

PE ratio

Question 53

Calculate PE ratio from earnings yield?

Answer 53

1 / earnings yield

Question 54

Calculate earnings yield from PE ratio?

Answer 54

100 * 1/PE ratio

Question 55

When question says total market value?

Answer 55

Amount in FSs * (market value/nominal value)

Question 56

Get P_o in preference dividend?

Answer 56

Preference dividend / cost of capital