P/CF

CFA Level II
#41

westbruin Wrote: ------------------------------------------------------- > i am wondering about the whole interest expense > coming in and Dividends changing in future, as > already posted by another… but that maybe too > detailed… > > and is there any guarantee that R goes up with > more debt? usually after-tax cost of debt is less > than cost of equity Now we can get into a MM world with and without taxes/financial distress . . . more variables haha.

#42

It does not amplify the number I don’t think. Think about it, if i have 1000 in sales and COGS of 500 and zero debt my NI is 500. If I go 50/50 debt to equity, how has that changed my NI except lower due to interest cost. Now, my ROE is now much higher because of less equity… It amplifies ratios, not the absolute number… I could be way off though

#43

Wouldn’t you have more capital to go after more NPV projects. Thus making projects independant and not mutually exclusive increasing the value of the firm.

#44

LanceTX Wrote: ------------------------------------------------------- > It does not amplify the number I don’t think. > Think about it, if i have 1000 in sales and COGS > of 500 and zero debt my NI is 500. If I go 50/50 > debt to equity, how has that changed my NI except > lower due to interest cost. Now, my ROE is now > much higher because of less equity… It amplifies > ratios, not the absolute number… I could be way > off though If you did this you would cash out of your equity and recieve a large Cash Flow… hense P/CF would again decrease… More importantly you would increase leverage to increase operations…

#45

Moregreat…your killin us.

#46

mwvt9 Wrote: ------------------------------------------------------- > cfaboston28 Wrote: > -------------------------------------------------- > ----- > > mwvt9 Wrote: > > > -------------------------------------------------- > > > ----- > > > ****Man I am going to fail this exam****** > > > > > > Edit for being an idiot. > > > > > > If you are going to fail then 95% of the people > > are going to fail. > > Thanks for the kind comment, but I think everybody > is overestimating my abilites. Although I haven’t > found any one topic beyond comprehension. I can’t > seem to keep things straight after not looking at > them for awhile. > > I only answer the questions that I have just > reviewed. > > How are you feeling boston? The more I am studying, less I am retaining. I dont know what is going to happen. I dont want to take this shi* next year and want to finish this year. I wish I get lucky exam day

#47

I think we are overanalyzing this question…

#48

That is for SURE.

#49

If its D . . .

#50

Dude… Moregreat… Are you still awake???

#51

moregreat gets a beatdown.

#52

Ok here what Schweser has to saY Answer C An increase in financial leverage should increase the firm’s risk and consequently its required rate of return. This should decrease the P/CF ratio, as indicated by the following expression: P0 / CF0 = (1 + g) / (r – g) Note that the reading does not allow for any interactive relationship between leverage and growth. Thus, no explicit consideration is given to whether the increase in leverage would increase ROE and therefore growth through the g = (ROE × retention) relationship.

#53

i don’t remember seeing this formula anywhere …

#54

I still think its a little fishy. the question didnt ask for a justified P/CF, which is what that ratio is… I agree moregreat, that doesn’t account for the dynamic relationship with all the variables involved. Schweser doin what they do best

#55

All i remember is P/CF is Intrinsic value/CF based on forecasted Fundamentals where Intrinsic value = FCFE(1+g)/r-g

#56

I have never seen that formula before. Edit: Bank shot getting it right for the wrong reason using the P/S ratio.

#57

oh … that kind of make sense now

#58

Niblita75 Wrote: ------------------------------------------------------- > I have never seen that formula before. > > Edit: Bank shot getting it right for the wrong > reason using the P/S ratio. I hope for many of these on 6/7

#59

mwvt9 Wrote: ------------------------------------------------------- > Niblita75 Wrote: > -------------------------------------------------- > ----- > > I have never seen that formula before. > > > > Edit: Bank shot getting it right for the wrong > > reason using the P/S ratio. > > I hope for many of these on 6/7 So do I.

#60

It still doesn’t make a whole lot of sense to me, especially in a real world context. A company that is more levered will trade at higher multiples is they are profitable.