COMMERCE 3FA3 Study Guide - Final Guide: Loss Aversion, Opportunity Cost, Option Style

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

Document Summary

Cost to firm a = #shares b x p firm b willing to be acquired by a (acquire p: amount of merger premium = acquire p vb. Price paid per shares = acquire p / # shares of b. Merger premium as % (firm b stock p) = (price paid per share pb) / pb. Merger premium per share = price paid per share - pb. Cost of capital = %firm must compensate its investors for the use of capital to finance projects = if > risk free rate = risky =>depends on the funds not the source. Cost of equity = return that equity investors require on their investment. Dividend: re = (d1/p0) + g and d1 = d0 (1+g) sml: re = rf + be (rm-rf) Cost of debt = return on company"s debt rd = ytm (given) Cost of preferred shares = required return on companies shares rp = d/p0.