WACC

How do you find the MV of equity?

(number of shares) * (price per share)

What are the 3 assumptions of WACC

1. All assets financed with debt and equity 2. current proportions of debt and equity will be the same in the future 3. the risk of the current project is the same as the risk of our new project

how do you find the number of shares?

BV of stock / par value per share

dividend yield

D1/P0

what is the equation for CAPM?

Ke = rf + ß * [E(Rm - rf]

What is the comparison model for Ke

Ke is greater than the largest YTM

What is the weight of debt?

MV of Debt/ (MV of debt + MV of equity)

WHat is the weight of equity

MV of equity / (MV of equity + MV of debt)

How do you find E(Rm)

Next years value on the Wilshire 5000

Historical

What has happened in the past?

CAPM stands for...

captial assets pricing model

Where do you find the price per share when calculating the MV of equity?

current years price in table

earnings

dividends / payout ratio

Payout Ratio

dividends/earnings

How do you find ß?

how does it interact with the market? ie. twice as volatile = 2

How do you find rf?

next years T-Bill or T-bond

What does WACC stand for?

weighted average cost of capital

Constant growth model

what will happen in the future if g is constant