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