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401 Final Notes sheet

401 Final Notes sheet -...

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Dupont =(NI/Sales)*(Sales/Asset)*(Asset/Equity) Sources v= Asset ^=liab & Eq Uses v=liab & Eq ^=Asset Sus. Growth Rate = cEq/Eq, RE/Eq, (1-d)*NI/Eq, 1-d*ROE, R*ROE, R*ROA*Leverage (all Eq @ Beg of period) (g*)= P rofit margin R etention ratio (1-d(dividend payout ratio(d/ni))) A sset turnover T (Leverage) If g>g* then atleast 1 of PRAT must increase Below BBB = junk bond Interest payments – tax deductible Dividends – not tax deductible Gordon Growth = P=Div1/r-g Financing required -Cash Conv Cycle = inv per.(inv/cogs) + collection per.(AR/Sales/365) –Pay per. (AP/COGS/365) VCs look for companies with high growth and low competition – trouble getting bank loans Convertible preferred, staged capital commit, syndicated investors (pool & invest) IPO – Underwriter(Bakeoff- banks compete), register w/ sec(quiet period), Market the offering (roadshow – tour to generate interest), Set price, sell the shares, lock up period Issue cost -administrative costs, underwriter cost, under pricing Leverage - increases risk(volatility) and return M&M – value is created from real assets (cap structure only matters if it affects cash flows), investors can replicate debt position themselves no value in firm doing it, Debt overhang – so much debt investor don’t give more $ - afraid they wont get paid back (0 return) Taxes Does the company benefit from debt tax shield?
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