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FIN 401
Melissa Toffanin

Sabrina Dhuman FIN401-Exam Crib Sheet After leasing questions, remember to switch back to END NPV=PV(OCF)+PV(NCS)+PV(NWC)+PV(CCA) Break Even EBIT – EPS curr= EPS prop Value of Right = Stock price – Ex-rights price EBIT-Interest o EBIT-Interest o 1. PV(OCF)=(S-V-FC)(1-Tc) /#shares /s /new #shares /s Underwriter charges% spread – how many shares to be issued =(EBITDA)(1-Tc) 1. X(1-%) = FTBR 2. X/sub price = #shares to issue 2. PV(NCS)=(-Initial Cost)+PV(Salvage) 3. PV(NWC)=(-NWC)+PV(NWC) Generate equal dividends CdT 1+0.5r SdT 1 n 4. PV(CCA)=([ /d+r[ /1+r])- ([ /d+r[ (1+r)]) 1. Find PMT where PV=P 0 2. Investor gets P1(#shares) but wants PMT(#shares) = extra/short Cost of Preferred Stock: Rp=D/P0 3. Find Price @Yr 1rom liquidating: *P =P1/12r Cost of Debt: YTM – use calc 4. Buy/Sell = Extra or short/*P 1 If 6 times greater 2 1. P0=6D/1+r + D/(1+r) 2. Find what 6D is then follow from step 2 above Dutch Auction Unlevered Firm=No Debt/All Equity 1. rank bids, highest to lowest based on price M&M Properties 2. Find successful bidders, that’s lowest price Borrow/lend at same rate as firm; no tax, bankruptcy cost & agency 3. If not enough – amt you have/amt needed = %, all bidders get cost; asymmetric information is there; efficient market prevails this % of what they want Property I Firm Value Property II WACC No V = V WACC=W R +W R L U E E D D Firm Commitment: Offering price is transferred from issuer to Taxes Value doesn’t WACC is constant underwriter; Firm sells all change w/cap struc w/changes in cap struc Regular Underwriting: Firm=#(price-fee) PM=#(fee) changes. No optimal RE=R u(R UR )DD/E) Ru=business risk, (RU-RD)(D/E)= Firm risk cap struc #contracts to sell= amt you have/size of contract Taxes V LV UDTc WACC=W R +E E (1-D D Profit=(#contracts held)(size)(end price – beginning price) Firm value increases Adding debt decreases as firm adds debt. WACC. 1. Firm is using Forward Contract Optimal cap struc = cheaper financing. 2. Int A contract where two parties agree on the price of an asset today 100% debt payments are tax deductible to be delivered and paid for at some future date RE=R u(R UR )DD/E)(1-Tc) Forward contracts are legally binding on both parties They can be tailored to meet the needs of both parties and can be Firm Restructures – risky – you go safe quite large in size 1. # shares to sell Because they are negotiated contracts and there is no exchange of -find % debt= (#shares)($)/amt being borrowed cash initially, they are usually limited to large, creditworthy savings NAL=Cost-PV(ATLP)±PV( / costPV(CCA)-PV(Salvage) -need to sell= (%)(#shares you own) corporations -dollar value= (need to sell)($) 1. Rd*=Rd(1-Tc) Long position – agreeing to buy the asset at the future date 2. ATLP=Lease Pymt(1-Tc) =PYMT 2. Find total CF = (#shares you own)(EPS)+Interest you earn (buyer); asset will rise in value =(#)(EBIT-Company/Int )+Int 3. PV(ATLP) **USE BGN & Rd* ** new #shares comp owns Short position – agreeing to sell the asset at the future date 4. Savings = amt(1-Tc) Firm Restructures – safe – you go risky (seller); asset will fall in value 5. PV(Savings) **USED END & Rd* ** 1. Find D/E ratio **V= #shares($) Cross-Hedging: Hedging an asset with contracts written on a 6. PV(CCA) & PV(Salvage) *r = Rd* 2. Find your equity = (#shares owned)($) closely related, but not identical, asset If finding indifferent lease pymt NAL=0 3. Need to borrow = (D/E)(Investor Equity) Basis Risk: When cross-hedging, the risk that the futures prices Min amt lessor accepts, max lessee pays 4. #shares bought = need to borrow/price does not move directly with the cash price of the hedged asset 1. Set NAL=0, find PV(ATLP) 5. Find CF = EPS(#shares you own)-your interest for borrowing EPS= EBIT/#shares b/c company isn’t borrowing; old +new Call Option-right to buy asset; seller obligated to sell asset if 2. PV(ATLP) as PV, i=Rd*, solve PMT **BGN** 3.BTLP= PYMT/1-Tc exercised Stock Split= #stocks(fraction) If no taxes, NAL=cost-PV(BTLP)-PV(Salvage) - If SE payoff is S-E (ITM for buyer) **USE BGN for LP** r=i, not using Rd* Stock Split Price = price(inverse fraction) -Profit = (#)(S-E) – (#)(premium) -Upper bound: Call option price must be less than or equal to the WACC=W R +E E (1-D D
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