BMGT 440 Study Guide - Midterm Guide: Profit (Accounting), Capital Expenditure, Capital Asset Pricing Model

• School: University of Maryland
• Department: Business and Management
• Course: BMGT 440
• Professor: David Kass

Document Summary

Calculating external funds needed: efn = ao (s1-s0) lo (s1-so) pm (s1) (b) So (s1 so) = change in sales from year 0 to year 1. Ao = total assets in year 0. Lo = current liabilities in year 0. Pm = profit margin -> profit after tax. B = retention ratio or (1-dividend payout ratio) If efn is negative, external funds are not needed. Estimated price per share/discounted cash flow: fcf (2017) = ebit(1-t, add depreciation (2017, = cash flow from operations, capex = 2017 gross ppe 2016 gross ppe, nwc = 2017 wc = current assets current liabilities. Two propositions with corporate tax (debt is usually 0 in proposition i) Keu = k + (d/el) (k-kd) (1-tc) Vl = d + el = (kd*d)/kd + (ebit - kdd) (1-tc)/kel. Breakeven ebit (if expected ebit is greater than breakeven ebit, choose to issue debt) (ebit* - id) (1-tc) = (ebit* - ie) (1-tc)