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b = retention ratio b = cash dividends paid NPAT IGR = Internal Growth Rate IGR = [RONA x b] [1 (RONA x b)] = RONA0 x b (Opening value) RONA = Return on closing net assets RONA = NPAT Net Assets
P0 Dt
= =
Todays share price. Paid dividend in t Periods. Constant growth rate Required return P0 = D R
periods. t = g = of dividend. R =
SGR = Sustainable Growth Rate SGR = [ROE x b] [1 (ROE x b)] = ROE0 x b (Opening value) ROE = Return on closing equity TIME VALUE OF MONEY (CH 5)
Zero Growth:
D0(1 + g)t
PV
= what future cash flows are worth today. FVt = what cash flows are worth in the future. r = rate (interest / return / discount) t = number of periods C = Cash amount
* IR per period x by the # of periods per year * 12% pa with monthly payments = 1% per month. The EAR = 12.6825%. INTEREST RATES AND BOND VALUATIONS (CH 7) r = Yield per period. t = Periods to maturity. C = coupon paid per period. F = Nominal value paid at maturity. Coupon = Regular interest payments. Nominal value = par value = face value - Amount to be repaid at the end of the term. Coupon rate = coupon nominal value
PV = C1 (R g)
= C0 (1 + g) (R g)
Non-constant Growth:
* FVt = C x (1+r)t - future (compound) factor : (1+r)t * PVt = C (1+r)t - present (discount) factor : 1/( 1 + r ) t *PV = FVt (1+r)t FVt = PV x ( 1 + r ) t
DU PONT
Maturity = # of years until the nominal value paid Yield to maturity = IR required on bond by market
PE = Leverage x Profitability x
Efficiency turnover) (Profit Margin) (Asset
NPV = PV costs NPV = [expected return + salvage value] costs (1 + IR)t (1 + IR)t (When you have diff cash flows add independently)
approach) RE = RF + (RM RF)E EQUITY = SHARE (RM RF) = Market Risk Premium
Capital Structure
PI = PVfuture cash flows initial investment (shows bang for buck) SHORT TERM FINANCING (CH 19)
Payable. Period Operating Cycle = Inv period + Acc Rec Period Inv Period = (365 x ave Inv) Cost of goods sold Acc Rec = (365 x ave Rec) Credit sales Acc Pay = (365 x ave Pay) Cost of goods sold MERGERS AND ACQUISITIONS (CH 24)
= Variance of portfolio 2P = (XA)2(2A) +(XB)2( 2B) + 2(XA)(XB) (PA,B)(A)(B) XA = Probability/ Weight of Share A 2A = Variance of Share A PA,B = Correlation Coefficient A = Std Dev of Share A
2 P
Capital (WACC) WACC = (E/V x RE) + (D/V x RD)(1 - Tc) If pref. shares too, add them : (P/V x RP) WACC = value (and visa versa) Doesnt when capital structure s
PE Ratio
risk increase = increase risk = increase return P = (XA)(A) +(XB)(B) + + (Xn)(n) ( all Xs = 1)
= [NOPAT/Sales x Sales/Capital WACC] x capital Improve EVA by: NOPAT/Sales = Profitability Sales/Capital = Asset Turnover WACC = RD ; RE ; capital structure Capital = invest in more +NPV projects