Alternate form: FCFE = NI + (1-DR) x (Depr - FCInv - WCInv)
Do we have a similar formula for FCFF in case the interest rate or the interest expense is not provided?
No, the debt ratio only applies to FCFE. (A big hint on the exam if you see DR.)
the KEY KEY thing is to be careful, I found most of my mistakes can be corrected if I was just a bit more careful, while I can still make some correct guesses for the difficult ones. I can hit high 70% most of time, so if we try to make those easy questions correct, we will SURE pass this thing. good luck guys
Thank you for QuantJock_MBA to create this thread and Good luck to everyone!
I agree, this is a great thread. One of my go-along notes on Saturday morning now. Good luck every AFer!
if you blank on this formula, the last step requires taking the square root. therefore, they **might** give a misleading answer that forgets to take the square root (the last step) so if it is a) .7160 b) .5147 c) .0479 This is totally INSANE method, I don’ think it will work all time
If the time series are cointegrated, the error term from regressing one on the other is covariance stationary and the t-tests are reliable If only one of the two series is covariance stationary, the results will not be reliable
Put-Call Parity Call your Ex and Put her on the Spot C + X/(1+r))^t = P + S Should work for the weepy guy that keeps posting about how his girlfriend dropped him…
While calculating the cap rate using Band-of-Investment (BOI) Method, they can throw you off by giving a tax rate. Here we are NOT using the after tax cost of debt to calculate cap rate
Built-Up Method (Gordon Growth Build Up) R0 = Gov. bond pure interest rate + Non-liquidity premium + Appreciation recapture premium + Risk premium Liquidity premium captures the illiquid risk of real estate Recapture accounts for the raw land appreciation and building depr./appr.
I believe the following is in CFAI text only (relating to adjustment to NOPAT in EVA). If the change in LIFO reserve > 0, add the change in LIFO reserve to NOPAT.
Just realize this easier expression for adjusted equity beta for equity cash flow method in AI. The original equation is equity beta = asset beta / [E/(E+D)]. The denominator is actually 1/(1 + D/E). Therefore, we can rewrite the equity beta as: equity beta = asset beta x (1 + debt-to-equity).
Adjusted CFO = CFO + int (1 - t)
good finding!
High D/P strategy = Value strategy
Forgot to mention, CAPM IRR in equity cash flow method is the geometric mean of the terminal value of each year, subtracted by 1.
explain more, eltia ?
Oh, I see… r = (1+0.4)(1+0.4)(1+0.4) - 1 = 174.4%
Sorry there was a mistake earlier about CAPM IRR. I meant the geometric mean of the cost of equity (as calculated from CAPM using the equity beta). So if the cost of equity is 40% for each of the three periods, the CAPM IRR is [(1+0.4)(1+0.4)(1+0.4)]^(1/3) - 1 = 40%.