FIN 401 Study Guide - Final Guide: W. M. Keck Observatory, Arbitrage, The Fortunes
8 Dec 2013
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Cost of debt: ytm use calc n]) Nal=cost-pv(atlp) pv(savings/cost)-pv(cca)-pv(salvage: rd*=rd(1-tc, atlp=lease pymt(1-tc) =pymt, pv(atlp) **use bgn & rd* *, savings = amt(1-tc, pv(savings) **used end & rd* *, pv(cca) & pv(salvage) *r = rd* Min amt lessor accepts, max lessee pays: set nal=0, find pv(atlp, pv(atlp) as pv, i=rd*, solve pmt **bgn** **use bgn for lp** r=i, not using rd* Borrow/lend at same rate as firm; no tax, bankruptcy cost & agency cost; asymmetric information is there; efficient market prevails. Optimal cap struc = w/changes in cap struc. Firm restructures risky you go safe: # shares to sell. Dollar value= (need to sell)($: find total cf = (#shares you own)(eps)+interest you earn. Eps= ebit/#shares b/c company isn"t borrowing; old +new. How many rights need to purchase @sub price: new shares to issue= ftbr/sub price, # rights(n)= shares o/s (old)/shares issued(new) Price=n(price stock sells for)+sub price/n+1: x/sub price = #shares to issue. Value of right = stock price ex-rights price.
