test 3 cheat sheet

Test 3 cheat sheet - Chapter 10 rd= interest rate on firm s new debt rd 1 T)= A T component cost of debt rp= component cost of preferred stock rs=

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Chapter 10 - = rd interest rate on firm s new debt - ( - )= - rd 1 T A T component cost of debt - = rp component cost of preferred stock - = rs component cost of equity - = re component cost of external equity - , , , = wd wp ws we target weights of , , debt preferred stock retained , earnings and external equity = ( - )+ + WACC wdrd 1 T wprp wcrs = / > rp Dp Pp / Dividend Current Price = + = / + = rs rRF RP D1 Po g r^s = . - - after tax cost of debt int rate B T ( - ) rd 1 T - , if stock market is in equilibrium = ; = rs r^s required rate expected rate CAPM : = +( - ) rs rRF rm rRF b : DCF = / + rs D1 Po g : + / - Constant rate Po D1 rs g : =( /( + ) )+ Grow indefinitely Po D1 1 rs ^1 ( /( + ) )… D2 1 rs ^2 Own bond yield plus risk : premium = + rs rd RP = + rs bond yield risk premium - , = / on calc rd I yr for the solver function - yield on preferred stock is lower than on debt - Estimating growth : rates = g ROExretention =( / ) ( - / ) ratio NI equity x 1 dividend EPS - : Cost of equity from new stock
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This note was uploaded on 12/01/2010 for the course BMGT 340 taught by Professor White during the Spring '08 term at Maryland.

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