Formulas

Question 1

How do you calculate the present value of a future cash flow?

Answer 1

PV = FCF / (1+ R)

Question 2

What is the formula for the present value of a perpetuity?

Answer 2

PV = CF/r

Question 3

What is the present value of a growing perpetuity?

Answer 3

PV = CF / (r-g)

Question 4

How do you calculate the expected return of a set of scenarios?

Answer 4

E(R) = E{ Pi x Ri

Question 5

How do you value an unlevered firm?

Answer 5

Vu = FCF/Ru

Question 6

How do you determine the value of a levered firm?

Answer 6

VL = Vu + PV (tax shield)

Question 7

How does distress affect levered firm value?

Answer 7

VL = Vu + PV (tax shield) - PV (distress)

Question 8

How do you calculate equity value from enterprise value?

Answer 8

Equity = EV - net debt

Question 9

How do you calculate enterprise value from equity value?

Answer 9

Enterprise value = equity + debt - cash = euiqty + net debt

Question 10

What is the formula for the weighted average cost of capital (WACC)?

Answer 10

Wacc = E/DE* Re + D/DE * Rd

Question 11

How is the cost of equity calculated using CAPM?

Answer 11

Cost of euity = Rf + B (Rm - Rf)

Rm = market return

Question 12

How do you compute the cost of debt?

Answer 12

Rd = Rf + credit spread

Question 13

What is the formula for the unlevered cost of capital?

Answer 13

Ru = E/DE * Re + D/DE * Rd

Question 14

How do you adjust beta for leverage (get levered beta)?

Answer 14

BL = Bu * (1+ D/E (1-T))

Question 15

How do you compute the unlevered beta from levered beta?

Answer 15

Bu= BL / * (1+ D/E (1-T))

Question 16

How do you calculate IPO proceeds accounting for the spread?

Answer 16

IPO proceeds = Share * price * (1-Spread)

Question 17

How do you compute the market capitalization after an IPO?

Answer 17

Market cap = shares outstanding * market price

Question 18

What is MM Proposition II without taxes?

Answer 18

Re = Ru + D/E (Ru - Rd)

Question 19

What is MM Proposition II with taxes?

Answer 19

Re = Ru + D/E (Ru- Rd)*(1-T)

Question 20

What is the formula for the interest tax shield?

Answer 20

Interest tax shield = interest paid * T = Rd * D * T

Question 21

How do you calculate the net benefit of debt financing in the trade-off theory?

Answer 21

Net benefit of debt = tax shield - (profitability of distress) * distress costs

Question 22

What is the current ratio?

Answer 22

Current ratio = current assets / current liabilities

Question 23

What is the quick ratio?

Answer 23

Quick ratio = Current assets - inventories / current liabilities

Question 24

How is net debt calculated?

Answer 24

Net debt = debt - cash

Question 25

What is the Net Debt to EBITDA ratio?

Answer 25

Net debt / EBITDA

Question 26

How is interest coverage calculated?

Answer 26

EBIT / Interest expense

Question 27

How do you calculate Return on Equity (ROE)?

Answer 27

Re = Net income / equity

Question 28

What is the DuPont decomposition of ROE?

Answer 28

ROE = Net margin * asset turnpver * equity multiplier = Net income/ reveneu * revenue / total assets * Total assets/Ebook

Question 29

What is the formula for free cash flow to equity?

Answer 29

FCFE = FCF - interest * (1-T) + net borrowing

Question 30

How do you calculate the free cashflow to pay debt and equity holders

Answer 30

FCF = EBIT (1 - Tc) + Depreciation - capital expenditures - increases in net working capital

Question 31

How do you calculate the price of a share of dividends with taxes?

Answer 31

P = D (1-Tdiv) / r