Notes 5-5-08 (CH12, Review)

Notes(CH12, - r preferred r preferred = Div Po Issues with WACC(12.6 1 Debt can have 2 costs-Costs of debt itself-Cost of increase risk 2 B can

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5/5/2008 Notes CH12 V = D + E WACC = (D/V) * (r debt) * (1-tax rate) + (E/V) * (r equity) WACC = (D/V) * (r debt) * (1-tax rate) + (C/V) * (R common) + (P/V) * (r referral) WACC uses market values Market Values Bonds (CH5) – Debt : PV of bond PV of all PMTS discounted at current interest rate + par value (discounted) Stocks (CH6) – Equity (R common) : Stock price * # of shares outstanding Required Rates of Return Bonds : r debt = YTM Common Stock : r equity = CAPM = rf + B(rm – rf) DDM (cost of equity) stocks : Zero growth of div : r = Div Po Constant growth of Div : r = Div + g (r equity) Po Expected return Preferred stock (guaranteed to get the Div) : Po = Div
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Unformatted text preview: . r preferred r preferred = Div Po Issues with WACC (12.6) 1. Debt can have 2 costs -Costs of debt itself-Cost of increase risk 2. B can change 3. Taxes (Corporate) Free Cash Flows (FCF) – more accurate measurements of the PV than DIV, EPS, etc. PV = FCF + FCF2 + …………. . FCFt + Pt . (1+r) (1+r)^2 (1+r)^t (1+r)^t Note cards 5X6 front and back Practice final online Review sheets After tax cost of debt = pretax cost of debt * (1-tax rate) If the question says after tax cost ………. Than do not multiply the tax rate what ever that cost is. 40 – 50 questions on the final Note cards 5 x 7 one side only, name on the back Tables Calculator...
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This note was uploaded on 09/08/2010 for the course BUS 170 at San Jose State University .

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Notes(CH12, - r preferred r preferred = Div Po Issues with WACC(12.6 1 Debt can have 2 costs-Costs of debt itself-Cost of increase risk 2 B can

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