Re = D1/P0 + g

P0= D1/(Re-g)
Re=Rf+Be(Rm-Rf) Rd= annual YTM on bond
- don’t forget to adjust YTM & coupon Rp= D/Po
- arith average: add up % chngs & find avg rate
%chg= (curr-prev)/prev - YTM & cr are always annual

g=renten rat x ROE

MVD= # bonds outstd x mkt price per
bond (try this method first)
MVP= # pref. outstd x price per pref
MVE= # sh. outstd x mkt price per sh
MVD = price as % of face val x face stock
value

Wd= MVD/TMV
We= MVE/TMV
Wd= D/(D+E) Wp= MVP/TMV
We= E/(D+E)

- “most recent div or div just paid” = D1

-”6% pref stock outstd currently selling
- book value of debt = fac val of all
for $104 per ch”,
outstd debt
- “person invests $X in bonds of firm ABC Rp= 6/104
or comm. Sh.” , X=MVD or MVE
- “embedded cost of X”, X= coupon rate
- “pays 7% of 100 par value, curr selling
for 104 per sh” Rp= 0.07x100 / 104
- ”comp issued 30 yr bond 7 yrs ago”,
N=23

Finding NAL

1. initial investment (+)

2. PV of lease pmts (-)

- convert pmts to A-tax
- switch mode to BGN or END (assume END if not given)

3. PV CCA TS
(I x d x T / d+r) (1+.5r / 1+r) - (SV x d x T / d+r) (1 / (1/1+r)^N )

4. PV sal (-)

5. NAL= I - PV lease pmt - PV CCA TS - PV sal +/- misc CFs

Finding BE lease pmt

aka “pmt where the lessee & lessor are indifferent to lease” or “max pmt that is acceptable to the lessor”

1. Set NAL=0 & solve for PV lease pmt

0= cost - PV lease pmt - PV CCATS - PV sal

PV lease pmt = cost - PV CCATS - PV sal

2. Input PV lease pmt, N, A-tax i into cal & solve for PMT

- don’t forget to convert to B-tax pmt (= A-tax / 1-T)