Beruflich Dokumente
Kultur Dokumente
Class attendance Home review with notes final review and re-doing exercises & CSs in the slide & last intake’s
exam by calculator:
- Read all slides: 1 day
- Do exercises: 3 days
- Do final exam: 1 days
- Group review = 2 days
- Financial year = 360 days, month = 30 days. But for long-term bond, the calendar year is used
- Payback investment rule: giving the number of years to pay back the initial investment
+ Simple payback: ignoring the time value of money
+ Discounted payback: counting the time value of money with a discount rate
- The internal rate of return (IRR): is the discount rate that sets initial investment equal to the PV of
future cash-flows:
𝑛
𝐂𝐅𝐭
𝐂𝐅𝟎 = ∑
(1 + 𝐈𝐑𝐑)𝑡
𝑡=1
+ Invest if IRR > other alternatives with equivalent risk and maturity
+ IRR determined by the linear interpolation method:
0 − VA(i1)
𝐈𝐑𝐑 ≈ i1 + (i2 − i1) ∗
VA(i2) − VA(i1)
n n
𝐂𝐅𝐭 𝐂𝐅𝐭
VA(i1) = ∑ (1+𝐢𝟏) t − 𝐂𝐅𝟎 > 0 , VA(i2) = ∑ (1+𝐢𝟐)t − 𝐂𝐅𝟎 < 0
t=1 t=1
- Cash flow (CF) = the difference b/w operating CF and CAPEX net of fixed assets disposals
Or the difference b/w the money collected and given by the firm:
+ How to calculate (case of Labonevance)
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3. Debt financing
3.1. Loan financing
- Bullet payment: loan is repaid in one single payment of maturity
- Repayment by annuity: the same amount total payment = annuity for each payment
- Repayment by tranches: the same amount of principal for each payment
- Amortization schedule of the loan:
Beginning balance Interest payment (IP) Principal payment (PP) Total payment (TP) Remaining balance
Bullet X =X*i 0 (/ X if maturity) = IP + PP = X - PP
Annuity X =X*i = TP - IP Annuity = X - PP
Tranches X =X*i X / no of period = IP + PP = X - PP
- Leasing:
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Year Rent Tax saving associated to After tax rent Machine Tax saving loss related to Net cash-flow (NCF)
the rent (TS) (ATR) depreciation (D) depreciation (TSL)
1 =X =X*i = X - TS =D =D*i = ATR + TSL
𝑛
𝐍𝐂𝐅𝐭
𝐋𝐞𝐚𝐬𝐞 = ∑
(1 + 𝐢)𝑡
𝑡=1
0 − VA(i1)
→ 𝐋𝐞𝐚𝐬𝐞 𝐜𝐨𝐬𝐭 = i1 + (i2 − i1) ∗
VA(i2) − VA(i1)
3.4. Bond financing
- Theoretical price of a zero-coupon bond:
+ Simple interest: P = FV / (1 + i*n), FV: Face value
+ Compound interest: P = FV / (1 + i)n
- Theoretical price of a bullet bond: using linear interpolation solver
𝑛
𝐂𝐭 𝐅𝐕
𝐓𝐡𝐞𝐨𝐫𝐞𝐭𝐢𝐜𝐚𝐥 𝐩𝐫𝐢𝐜𝐞 = ∑ + , 𝐶: 𝑏𝑢𝑙𝑙𝑒𝑡 𝑐𝑜𝑢𝑝𝑜𝑛
(1 + 𝐢)𝑡 (1 + 𝐢)𝑛
𝑡=1
- The yield to maturity (YTM): is the discount rate that sets the present value of the promised bond
payment equal to the current market price of the bond.
+ YTM of a zero-coupon bond: P = FV / (1 + YTM)n
+ YTM of a bullet bond: P = C * {[1 - (1 + YTM)-n]/YTM} + FV / (1 + YTM)n Using linear
interpolation solver
4. Stock financing
4.1. Capital increase
- Earning Per Share (EPS) = earnings / # share
- Preferential subscription rights (PSR) = right attached to each existing share allowing its holder to
subscribe to the new share issue on a pro rata of the number of shares held.
N0 P0 +Ni Pi nP0 +Pi
- P1 = =
N0 + Ni 𝑛+ 1
P0 −Pi P1 −Pi
- P𝑃𝑆𝑅 = P0 − P1 = =
𝑛+ 1 𝑛
n = N0 / Ni: the new rights issue ratio, N0, Ni are # existing shares and new shares
P0, Pi, P1: Stock price of existing share, new share and after the capital increase
D E
WACC i (1 ) R
DE DE
With i - the cost of debt; τ - the tax rate, D - the market value of Debt, E - the market value of Equity, R -
the cost of equity.
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Final exam notes
Chapter 1:
Value theory: will not give formulas
Chapter 2:
Rule: NPV, Payback, IRR
Linear interpolation formula will be given and the boundaries
Cash-flow calculation
Chapter 3:
Debt financing:
- Bullet, annuity, tranches
- Cost of a loan
Chapter 4:
Have not to remember formulas, just know how to use
Chapter 5:
Have to apply the steps, not formulas and steps
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