Final Flashcards

(29 cards)

1
Q

Discount rate that captures the riskiness of the firm

A

WACC

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2
Q

Wacc

A

Discount rate that captures the riskiness of the firm

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3
Q

Cost of debt =

A

YTM

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4
Q

rE formula (equity and debt)

A

(EBIT-Interest)/E

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5
Q

rE formula (no debt)

A

EBIT/E

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6
Q

Price per share of a firm formula

A

Market value of equity/#shares outstanding

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7
Q

Cost of equity

A

rE

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8
Q

Cost of capital

A

r0

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9
Q

Cost of debt

A

rD

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10
Q

Return on (levered) equity

A

rE

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11
Q

Return on (unlevered) equity

A

r0

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12
Q

The return that investors require when they invest in bonds (interest rate)

A

rD

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13
Q

rE

A

Cost of equity
Return on (levered) equity
Return on common stock

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14
Q

Return on common stock

A

rE

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15
Q

r0

A
Cost of capital
Return on (unlevered) equity
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16
Q

rD

A

Cost of debt
Interest rate
YTM

17
Q

Leverage formula

A

Book value of debt/market value of a firm

18
Q

Formula for number of new shares

A

Amount raised for company = number of shares sold x subscription price

19
Q

How many rights will it take to purchase one new share formula

A

Number of rights (#shares outstanding) / #new shares

20
Q

ex rights share price formula

A

Total paid / shares now owned

21
Q

Value of one right formula

A

Current stock price - ‘ex rights’ share price

22
Q

Ex rights share price

A

Value of a share, post rights offering

23
Q

Amount raised for company/subscription price =

A

Number of new shares sold

24
Q

Number of rights/number of new shares

A

How many rights it will take to purchase one new share

25
Number of shares outstanding / number of new shares
How many rights it will take to purchase one new share
26
Number of rights is equal to
Shares outstanding
27
Scenario 1 Prop 2
Leverage increases the risk and return to stockholders
28
Scenario 2 Prop 1
Firm value increases with debt
29
Formula for number of shares repurchased
Debt/price per share