- Know the formula for the WACC 2) Know the formula for NPV, AAR, Profitability Index and IRR and how to calculate each. 3) Know how to calculate DOL, DFL and DTL (degree of operating leverage…) 4) Know what is the Dividend Signaling Hypothesis and the signaling effects of a change in a firm’s dividends. 5) Know the different ways to calculate the cost of equity (ks) 6) Know how to calculate the cost of new equity (ke) 7) Know how to calculate the EPS after a share repurchase 8) Know how to calculate, and the effects of, BV per share after a share repurchase 9) Know the advantages and disadvantages of share repurchases vs cash dividends 10) Know how to calculate the after-tax cost of debt and the cost of preferred shares used in the WACC formula.

I am having a confusion on the schweser basis to calculate the average book value for AAR (LOS 47). It seems that they did not consider net income when they calculate the average book value. Can anybody confirm the correct methodology ?

“they did not consider net income when they calculate the average book value” the book value doesn’t relate to the net value - it’s the cost of an asset minus accumulated depreciation AAR = AverageNetIncome / AverageBookValue