# FINA4204 midterm

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1. Discount FCFE byto get...
• Required return of equity from CAPM
• equity value
2. Discount FCF by or , plus PV(TV), to get ….
• Cost of capital, WACC
• enterprise value
3. Calculate FCF with EBIT (plus transform capex and dpn)
EBIT*(1-t) + dpn – change in NWC – capex (adjusted by 3 items), which equals

EBIT*(1-t) – change in NWC – change in net fixed asset
4. Calculate FCF with EBITDA

FCF = EBITDA*(1-t) + Dpn (t) – change in NWC – capex

5. Calculate EBIT (plus breakdown of costs)

• Revenue – operating cost, which equals
• Revenue – (COGS + dpn + SGA)

6. Calculate FCFE
Net income, adjusted by 3 items, + net increase in debt
7. Calculate net increase in debt
New issue - principal repayments
8. Calculate FCFC
Interest expense (1-t) –net increase in debt
9. Initial NWC and fixed asset requirements appear in … and … in DCF model

• When calculating change in net fixed asset and change in NWC
• When calculating free cash flow(negative initial cash flow)

10. The firm reaches terminal growth after 2020, calculate TV
TV2020 = FCF2021/(r-g)
11. Calculate firm value (2 ways)
• Price per share*shares outstanding + interest bearing debt
• PVs of FCFs + PV (TV) + excess cash at T0
12. Calculate Enterprise value (2 ways)
PVs of FCFs + PV (TV) (ie. FCF1/(WACC-g)

(Price per share*shares outstanding + interest bearing debt)[firm value] – excess cash at T0
13. Line items on DCF model
Year, period, NOPAT, - change in NWC, - changing in net fixed asset>free cash flow

PV of FCF, sum of PV of FCF from t=0 to t=5(at t=0), terminal value at t=5, PV of TV(at t=0), Enterprise value
14. Formula of PV(annuity)
C/r*(1-1/(1+r)^T)
15. Formula of PV(growing annuity)

C/(r-g)*(1-(1+g)^T/(1+r)^T)

16. Formula of DDM

P0 = D1/(r-g)

17. Verbal: in year 2 through 5, dividend is expected to grow at 15%; after year 5, dividend will grow at 10%

D2=D1*1.15…..D5=D4*1.15; D6=D5*1.1

18. ROE decomposition
=NI/equity

=ROA * leverage

=Net profit margin * asset turnover *financial leverage

=net profit margin*equity turnover
19. AR turnover + days receivable outstanding
Sales on credit/avg AR (the higher the better)

360/ AR turnover
20. Inventory turnover calculation; it means///
COGS/avg inventory

how quick is inventory selling
21. Calculate purchases

Purchases = COGS + change in inventory

22. AP turnover

Purchases/avg AP (the lower the better)

23. The ability of firm to pay ST obligations: use what ratio and Calculate

Current ratio: current asset/current liability

24. Forecasting: treasury stock as plug or B/S: A>L+SE means….
A<L+SE means…
Treasury stock reissue(+SE), treasury stock repurchase(-SE)
25. Forecasting: investing CF-acquisition of PPE
change in Net PPE + dpn
26. G, b, r
G = br
27. DDM with EPS
P0 = EPS0(1-b)(1+g)/(k-g)
28. Current PE (+mutation)
P0/EPS0 = (1-b)(1+g)/(k-g)
29. Forward PE (+mutation)
P0/EPS1 = (1-b)/(k-g)
30. An undervalued company is one that…
Has low PE

High expected growth in earnings (ROE)

Low risk(low K, low leverage)

*PE is also affected by payout policy
31. companies that attain growth more efficiently by investing less in better return projects will have....PEG
higher
32. companies with very high or very low growth will have .. PEG than firms with average growth. The bias is worse for .....stocks
• higher;
• low growth
33. Calculate PEG; when PEG<1, stock is...
• PE/expected growth in earnings;
• undervalued
34. PBE with ROE (+mutation); hence price-book equity ratio of a stable firm is determined by ….

• PBE = ROE1 * payout ratio /(k-g)
• =(ROE1 – g) / (k-g);
• Difference between ROE1 and k

35. Calculate PB (2 ways)
MV(equity)/BV(equity) OR

Price per share/BV per share
36. Higher risk firm has…. PE

Lower

37. Firms with lower reinvestment needs, thus higher payout ratio, have… PE

Higher

38. Firms with …. Growth rates will have a …. PEG than firms with average growth rates
Very low or very high
39. ROI - what is I
WC investment + capex investment
40. when is a stock undervalued with ref to the PB ratio
PB <1 and ROE1 > r
41. generally, ... and ... will result in a high PB ratio
high payout, high growth
42. when growth increase and ROE>r, PB...;
when growth decrease and ROE<r, PB...
increase; increase
43. A high P/B ratio stock commonly has a correspondinglyROE
High
44. Advantage of price to sales ratio
Startups won’t have positive income

Difficult to manipulate

Not as volatile as PE multiples

Evaluate the effects of changes in pricing policy or corporate strategy
45. Calculate PS ratio; similarly, net profit margin is the key driver ofratio
Net profit margin * (1+g) * (1-b) / (k-g);

EV/sales
For firms with net loss

For firms with significant noncash expenses

Comparable across firms with different capital structure
47. firms with larger net operating loss have…. EV/EBITDA
higher
48. EV/EBIT should be used for... because....; if EV/EBITDA is used, operating CF is ...and EV/EBITDA is ..., making this stock look cheap
• capital intensive companies because these companies report significant depreciation, thus EBITwhich include depreciation, better represent these companies;
• overstated ;
• understated
49. EBIT is a good proxy for ... while EBITDA is a good proxy for ...
• free cash flow;
• operating cash flow
50. as cost of capital increases, EV/EBITDA ….
decrease
51. As tax rate increases, EV/EBITDA...
Decreases
52. as depcreciation as a proportion of EBITDA increases, EV/EBITDA ... because...
• increasses;
• more tax saving, higher EV
53. what is included in D of firm value
• ST: note payable
• LT: any debt
54. what is the value of the firm...."value" means?
firm value
55. what is included in nonoperating asset
• excess cash
• note receivable
• marketable securities
56. g, payout, ROE equation
ROE*payout = ROE -g
57. financing cash flows
• new stock/debt issue
• -dividend
• -treasury stock
• -repayment on debt
58. your opinion of fair PE can be express as
(1+g)/(r-g) [your belief] * dividend yield * current PE
 Author: yhliuaa ID: 309423 Card Set: FINA4204 midterm Updated: 2015-10-15 09:58:03 Tags: FINA4204 midterm Folders: Description: FINA4204 midterm Show Answers: