FIN 300 Cheat Sheet Final - Bonds CHPT 4 Fisher...

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BondsCHPT 4Fisher Effect (Treasury Bill, Real rate, Inflation)R= (Real Rate +1) x (Inflation Rate +1) -1Real Rate = 1+Nominal Rate/1+Expected Inflation (Nominal Rate = Rf)Current Yield = coupon/priceDividend Rate = Current Yield + Capital Gains YieldCapital Gains Yield = Next Yrs Price of Bond - Current Price of Bond / Current Price of BondBond Rules:1. Bond prices and interest rates are inversely related2. Longer the time to maturity the more sensitive it is to interest rate3. If time to maturity is the same as. A 0 coupon bond is always more sensit. to changesa constant debt/equity ratio)in interest than reg. bondCHPT 24. when dealing with reg. bonds the lower the coup. rate the more sens. it is to change in int.*DON’T include depr. Since its NOT a CASH OUTFLOW and DON’T include interest b/c it’s a fin. Exp.CHPT 5 and 6Net Capital Spending = Increase in fixed assets + depreciationPortfolio Beta = Wa(Bb)+Wb(Bb)Share PricesRf securities have Beta of 0P = DIV/RateCapital Budgeting: 7 Things you need to calculateMarket Securities have Beta of 1*If you want to find the rate of return rearrange formula for R or plug the numbers in since its MCEAR = (1+APR/12)^12-1CHPT 3EPR = [(1 + EAR)^(1/12)] – 1 Iif payments are monthly BY 1+rate of ReturnPresent Value or Growing Annuity:**IF the revenues are different for each year bring them back to PV byCF/r-g[1-(1+g/1+r)^n]dividing 1+rate of return to the power of the year**IF revenues are same plug OCF* into Calc N=yrs, I%=Req. rate of ret., PMT=OCF*, PV=CMPTC=Cost of Machine D=Depr. T=Tax R=Req Rate of ReturnNPV/IRRF3: Cash Flow, I%=Disc rate, List: Enter values, PV of CCA tax shield = step 6-step 7NPV=CMPT, IRR = I/% on CalculatorPay Back Period Growth is only preferred over NPVWhen the company that is considering the project is projecting serious liquidity problems in near futureDividend Payout Ratio=Cash Dividends/Net IncomeRetention/Plowback Ratio=Retained Earnings/Net IncomeCapital Intensity Ratio=Firms Total Assets/Sales (amount of assets needed to generate $1 in sales)IGR= ROAxR/1-ROA x R (Max. Growth without External Financing) ROA= Return on assets = Net Income/Total AssetsROE= Net Income/Total EquityR= Plowback/Retention Ratio = Addition to Retained Earnings/Net Income*OR R=1-(dividends/netincome) so if dividends is 40% then R = 60%SGR=ROE x R/1-(ROE x R) (Max Growth that can be ach. with no ext. EQUITY financing while maintaining CFFA=oper. cash flow-Net Cap. Spend.-Changes in NWC Calculator:PMT=coupon, FV=Face value of Bond, N = # of payments, I/% = Coupon RateOperating Cash Flow= EBIT(Earnings before INTEREST and TAXES) + Depreciation- TaxesGrowing Dividend/Price of Stock= Div/r-gOR Sales- COGS- Other Expenses- TaxesDividend Rate "r"= Div (1+g)/r-g (OR PLUG ANSWERS INTO ABOVE FORMULA SINCE ITS MC)Perpetual Bond= CF/rEAR= [1+(quoted rate/M)]^m-1Cash Flow to Stockholders = Div. Paid - Net new equityEPR= (1+EAR)^1/PMT/YEAR - 1APR= Interest per month x 12 orEPR x 121. Capital Cost(Initial Investment or cost of the new machine or equipment)2. PV of Salvage Valuedisc rate is 10% (End of 3 yrs machine can be sold for 5000 (5000/(1.10)^3To find R

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