business finance exam 2

standard deviation

=SQRT(variance)

variance

=standard deviation²

ex-post variance

=Σ(rate-average rate)²/(n-1)

ex-ante variance

Σprobability(rate-average rate)²

ex-ante mean

=SUMPRODUCT(probabilities, returns)

standard deviation ex-ante

1. find mean

2. find squared deviations

3. SUMPRODUCT(probabilities, squared deviations) - variance

4. SQRT(variance)

coefficient of variation

= standard deviation/average rate

ex-post covariance

= Σ(stock rate - average stock rate)(market rate - average market rate)/(n-1)

ex-ante covariance

= Σ proabability (stock rate - average stock rate)(market rate - average market rate)

correlation

= covariance of stock & market/(standard deviation of stock * standard deviation of market)

portfolio variance

(stock1 weight² x variance) + (stock2 weight² x variance) + 2(stock1 weight x stock2 weight x covariance of 1&2)

CAPM

Rs = Rfr + RPm * Beta

Beta

= covariance of stock & market/variance of market

Jensen’s Alpha

= actual intercept - (1-Beta)*Rfr

CML formula

Rp = Rfr + Rpm*(portfolio standard deviation/market standard deviation)

portfolio matrix

w = g term + X * h term

Banko model

P0 = ((ID/r)+D1)/r

Growth rate

(1 –Dividend Payout Rate)(ROE)

Retention Rate

(1 –Dividend Payout Rate)

dividend yield

D1/P0

capital gains yield

P1-P0/P0

levered beta

unleavered beta*(1+(1-T)*(D/E))

operating cash flow

NOPAT + depreciation

NOPAT

EBIT x (1-T)

working capital

(cash + AR + inventory) - (AP + accruals)

EVA

NOPAT - (WACC)*(capital)

ROE

net income/total equity

ROE from ROA

ROA*(1+D/E)

quick ratio

(current assets - inventory)/current liabilities

inventory turnover

sales/inventory

debt ratio

total debt/total assets

times interest earned ratio

EBIT/interest expense

basic earnings power

EBIT/total assets

ROA

net income/total assets

P/E

price per share/earnings per share

book value per share

common equity/shares

market to book ratio

price/book value per share

market value added

total market value - total book value OR PV of future EVA

DuPont formula

ROE = profit margin x total asset turnover x equity multiplier

profit margin

net income/sales

total asset turnover

net sales/assets

equity multiplier

assets/equity OR (1+D/E)

free cash flow

NOPAT - change in NOWC - change in NFA

Ke

(dividend 1/net price 1) + g

new ROE

ROA + leverage effect + tax shelter effect

leverage effect

(ROA - rD) x (D/E)

tax shelter effect

(rD - ATrD) x (D/E)

enterprise value

FCF1/(WACC-g) or D + P + MVE

MVA

EVA/(WACC - g)

market value of equity

BVCS + MVA