COMMERCE 3FA3 Study Guide - Midterm Guide: Apple Watch, Tax Shield, Systematic Risk

• School: McMaster University
• Department: Commerce
• Course: COMMERCE 3FA3
• Professor: Anwar Husain

Document Summary

Retention ratio: retained earnings/net income return on equity: net income aft interest + taxes / avg common shareholders eq. Use historical growth rate (calculate avg growth rate using historical dividends) (latest-newest/latest) add up all of them and divide by how many there is. Use earnings retention approach (how much money a company retains, for example, a growing tech company will usually retain 100% of its earnings, then change its ratio to pay dividends) Usi(cid:374)g a(cid:374)alyst"s fo(cid:396)e(cid:272)ast fo(cid:396) futu(cid:396)e di(cid:448)ide(cid:374)d g(cid:396)o(cid:449)th (cid:894)if (cid:373)ultiple diffe(cid:396)e(cid:374)t o(cid:374)es, use a(cid:448)e(cid:396)age fo(cid:396)e(cid:272)asted g(cid:396)o(cid:449)th fo(cid:396) all a(cid:374)alysts) Cost of debt: return that le(cid:374)de(cid:396)s (cid:396)e(cid:395)ui(cid:396)e o(cid:374) the fi(cid:396)(cid:373)"s de(cid:271)t. Focus is on long-term debt or bonds. Best estimated by computing the yield-to-maturity (ytm) on the existing debt. Recall: ytm = the return you make on the bond if you hold it until maturity. May be estimated based on the bond rating of a comparable bond.