FIN 509 & FIN510 Class Web Page, Spring '19
Business Finance Online, an interactive learning tool for the Corporate Finance student http://www.zenwealth.com/BusinessFinanceOnline/index.htm
(could be very helpful)
Weekly SCHEDULE, LINKS, FILES and Questions
Week 
Coverage, HW, Supplements 
Required 
Equations 
Videos (optional) 

Week 0 
Market
Watch Game Use the information and directions
below to join the game. 1. URL for your game: 2. Password for this private game: havefun. 3. Click on the 'Join Now' button to get
started. 4. If you are an existing MarketWatch member, login. If you are a new user,
follow the link for a Free account  it's
easy! 5. Follow the instructions and start trading! 



Week1,2 
Chapter 5 Time value of money 1 Week 1 in class exercise (word file) Solution (New
FYI) Concept of FV, PV,
Rate, Nper Calculation of FV, PV,
Rate, Nper Concept of interest
rate, compounding rate, discount rate Chapter 6 Time Value of Money 2 Concept of PMT, NPV Calculation of FV, PV,
Rate, Nper, PMT, NPV, NFV Concept of EAR, APR Calculation of EAR,
APR HOMEWORK
of Chapters 5 and 6 (due with midterm exam) 1. The Thailand
Co. is considering the purchase of some new equipment. The quote consists of
a quarterly payment of $4,740 for 10 years at 6.5 percent interest. What is
the purchase price of the equipment? ($138,617.88) 2. The
condominium at the beach that you want to buy costs $249,500. You plan to
make a cash down payment of 20 percent and finance the balance over 10 years
at 6.75 percent. What will be the amount of your monthly mortgage
payment? ($2,291.89) 4. Shannon wants
to have $10,000 in an investment account three years from now. The account
will pay 0.4 percent interest per month. If Shannon saves money every month,
starting one month from now, how much will she have to save each month?
($258.81)
14. What is the
future value of weekly payments of $25 for six years at 10 percent? ($10,673.90) 15. At the end of
this month, Bryan will start saving $80 a month for retirement through his
company's retirement plan. His employer will contribute an additional $.25
for every $1.00 that Bryan saves. If he is employed by this firm for 25 more
years and earns an average of 11 percent on his retirement savings, how much
will Bryan have in his retirement account 25 years from
now? ($157,613.33) 16. Sky
Investments offers an annuity due with semiannual payments for 10 years at 7
percent interest. The annuity costs $90,000 today. What is the amount of each
annuity payment? ($6,118.35) 17. Mr. Jones
just won a lottery prize that will pay him $5,000 a year for thirty years. He
will receive the first payment today. If Mr. Jones can earn 5.5 percent on
his money, what are his winnings worth to him
today? ($76,665.51) 18. You want to
save $75 a month for the next 15 years and hope to earn an average rate of
return of 14 percent. How much more will you have at the end of the 15 years
if you invest your money at the beginning of each month rather than the end
of each month? ($530.06) 19. What is the
effective annual rate of 10.5 percent compounded
semiannually? (10.78%) 22. What is the
effective annual rate of 12.75 percent compounded daily? (13.60 percent) 23. Your
grandparents loaned you money at 0.5 percent interest per month. The APR on
this loan is _____ percent and the EAR is _____ percent. (6.00; 6.17) FYI only: help for homework Part 1(Qs
12) Part 2(Qs
48) Part 3(Qs 912) Part 4(Qs
1316) Part 5(Qs
1720) Part 6(Qs 2124) First
week’s class videos (FYI) Part I Part
II Part III Part 41 Part 42 Part 43 Part 44 Part 5 Part
6 Second
week’s class videos (FYI, new) 
Calculators (FYI) Time
Value of Money Calculator © 2002  2019 by Mark A. Lane,
Ph.D. Math Formula FV = PV *(1+r)^n PV = FV /
((1+r)^n) N
= ln(FV/PV) / ln(1+r) Rate = (FV/PV)^{1/n} 1 Annuity: N
= ln(FV/C*r+1)/(ln(1+r)) Or N
= ln(1/(1(PV/C)*r)))/ (ln(1+r)) EAR = (1+APR/m)^m1 APR = (1+EAR)^(1/m)*m Excel Formulas To get FV, use FV
function. =abs(fv(rate, nper,
pmt, pv)) To get PV, use PV
function = abs(pv(rate, nper,
pmt, fv)) To get r, use rate
function =
rate(nper, pmt, pv, fv) To get number of years,
use nper function = nper(rate, pmt, pv,
fv) To get annuity payment, use PMT
function = abs(pmt(rate, nper, pv,
fv)) To get Effective rate (EAR), use
Effect
function =
effect(nominal_rate, npery) To get annual percentage rate
(APR), use nominal function APR = nominal(effective rate, npery) 
Fall of Lehman Brother part i http://www.youtube.com/watch?v=aPOtQkSiCk8 Fall of Lehman Brother part ii http://www.youtube.com/watch?v=l0N_FX0kUMI&feature=relmfu Fall of Lehman Brother part iii http://www.youtube.com/watch?v=YmZd3vVoPgY&feature=relmfu Fall of Lehman Brother part iv http://www.youtube.com/watch?v=FcO_dQCJ3HA&feature=relmfu Fall of Lehman Brother part v http://www.youtube.com/watch?v=L4gqzRePtes Fall of Lehman Brother part vi http://www.youtube.com/watch?v=Ms_tnEe4wFk&feature=relmfu 6 Signs a Business Has Bad
Management  Phil Town (a good video to watch)


Week3 
Chapter
7 Bond Pricing Simplified Balance Sheet of WalMart
https://finance.yahoo.com/quote/WMT/balancesheet/ For discussion: · What is this “long term debt”? · Who is the lender of this “long term debt”? So this long term debt is called bond in the financial market.
Where can you find the pricing information and other specifications of the
bond issued by WMT? How Bonds Work (video) Investing
Basics: Bonds(video) FINRA – Bond market
information http://finramarkets.morningstar.com/BondCenter/Default.jsp WALMART STORES INC
http://finramarkets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C104227&symbol=WMT.GP Coupon Rate
7.550 % Maturity Date
02/15/2030
Credit and
Rating Elements
Classification
Elements
Special Characteristics
Issue
Elements
Bond
Elements
For class discussion: Fed has hiked interest rates. So, shall you
invest in short term bond or long term bond? Study guide 1. Find bond sponsored by WMT just go to www.finra.org, è Investor center è market data è bond è corporate bond Corporate
Bond
2. 2.
Understand what is coupon, coupon rate, yield, yield to maturity, market
price, par value, maturity, annual bond, semiannual bond, current yield. 3. 3.
Understand how to price bond Bond
price = abs(pv(yield, maturity, coupon, 1000))  annual coupon Bond
price = abs(pv(yield/2, maturity*2, coupon/2, 1000))  semiannual
coupon Also change the yield and observe the
price changes. Summarize the price change pattern and draw a graph to
demonstrate your findings. Again, when yield to maturity of
this semi_annual coupon bond is 4%, how should this WMT bond
sell for? 4. Understand
how to calculate bond returns Yield
to maturity = rate(maturity, coupon, market price, 1000) – annual
coupon Yield
to maturity = rate(maturity*2, coupon/2, market price, 1000)*2 –
semiannual coupon Bond
Calculator (www.jufinance.com/bond) For example, when the annual coupon bond
is selling for $1,100, what is its return to investors? For example, when the semiannual
coupon bond is selling for $1,100, what is its return to investors? 5. Current
yield: For the above bond, calculate current yield. 6. Zero
coupon bond: coupon=0 and treat it as semiannual coupon bond. Example:
A ten year zero coupon bond is selling for $400. How much is its yield to
maturity? A ten year zero coupon bond’s yield to
maturity is 10%. How much is its price? 7. Understand
what is bond rating and how to read those ratings. a. Who
are Moody, S&P and Fitch? b. What
is WMT’s rating? c. Is
the rating for WMT the highest? d. Who
earned the highest rating? Homework (Due with mid term) 1. Firm AAA’s bonds
price = $850. Coupon rate is 5% and par is $1,000. The bond has six
years to maturity. Calculate for current yield? (5.88%) 2. For a zero
coupon bond, use the following information to calculate its yield to
maturity. (14.35%) Years
left to maturity = 10 years. Price = $250. 3. For a zero
coupon bond, use the following information to calculate its price. ($456.39)
Years left to maturity = 10 years. Yield = 8%. 4. Imagine that an
annual coupon bond’s coupon rate = 5%, 15 years left. Draw priceyield
profile. (hint: Change interest rate, calculate new price and draw the
graph). 5. IBM 5 year 2% annual coupon bond is
selling for $950. How much this IBM bond’s YTM? 3.09% 6. IBM 10 year
4% semiannual coupon bond is selling for $950. How much is
this IBM bond’s YTM? 4.63% 7. IBM 10 year 5% annual coupon
bond offers 8% of return. How much is the price of this
bond? 798.7 8. IBM 5 year 5% semiannual coupon
bond offers 8% of return. How much is the price of this bond? $878.34 9. IBM 20 year zero
coupon bond offers 8% return. How much is the price of this bond? 208.29 10. Collingwood
Homes has a bond issue outstanding that pays an 8.5 percent coupon and
matures in 18.5 years. The bonds have a par value of $1,000 and a market
price of $964.20. Interest is paid semiannually. What is the yield to
maturity? (8.90%) 11. Grand Adventure
Properties offers a 9.5 percent coupon bond with annual payments. The yield
to maturity is 11.2 percent and the maturity date is 11 years from today.
What is the market price of this bond if the face value is $1,000? ($895.43) 12. The zero coupon
bonds of D&L Movers have a market price of $319.24, a face value of
$1,000, and a yield to maturity of 9.17 percent. How many years is it until
these bonds mature? (12.73 years) 13. A zero coupon bond
with a face value of $1,000 is issued with an initial price of $212.56. The
bond matures in 25 years. What is yield to maturity? (6.29%) 14. The bonds issued by Stainless
Tubs bear a 6 percent coupon, payable semiannually. The bonds
mature in 11 years and have a $1,000 face value. Currently, the bonds sell
for $989. What is the yield to maturity? (6.14%) Videos
 homework help Part I Q1Q2 Q3Q4 Q5Q8 Q9Q14 Class
Videos of this week Part I Part II Part III Part IV Mid Term (for
chapters 5, 6, 7) (on blackboard) 
Bond Pricing Formula (FYI)
Bond Pricing Excel Formula Summary of
bond pricing excel functions To calculate bond price (annual coupon bond): Price=abs(pv(yield
to maturity, years left to maturity, coupon rate*1000, 1000) To calculate yield to maturity (annual coupon bond):: Yield
to maturity = rate(years left to maturity, coupon rate *1000, price, 1000) To calculate bond price (semiannual coupon bond): Price=abs(pv(yield
to maturity/2, years left to maturity*2, coupon rate*1000/2,
1000) To calculate yield to maturity (semiannual coupon
bond): Yield
to maturity = rate(years left to maturity*2, coupon rate *1000/2,
price, 1000)*2 To calculate number of years left(annual coupon bond) Number
of years =nper(yield to maturity, coupon rate*1000, price, 1000) To calculate number of years left(semiannual coupon bond) Number
of years =nper(yield to maturity/2, coupon rate*1000/2, price,
1000)/2 To calculate coupon (annual coupon bond) Coupon
= pmt(yield to maturity, number of years left, price, 1000) Coupon
rate = coupon / 1000 To calculate coupon (semiannual coupon bond) Coupon
= pmt(yield to maturity/2, number of years left*2, price, 1000)*2 Coupon
rate = coupon / 1000 
Bond Investing  Interest Rate Risk Is The 35Year Bull Market In Bonds Dead? The ‘Godfather of Bonds’ Gary
Shilling Responds How To Invest in Bonds When Rates Are Rising? Fed Hiked Interest Rates, So Why Are Bond Yields Still So Low? CME
Group to Trade Bitcoin Futures  BTC at AllTime High Above $6,404  NEWSBTC
11/1/2017 (Video)


Week4 
Chapter
8 Stock Valuation 1.
Introduction

Stock screening tools · Reuters stock screener to help select stocks http://stockscreener.us.reuters.com/Stock/US/ · FINVIZ.com http://finviz.com/screener.ashx · WSJ stock screen http://online.wsj.com/public/quotes/stock_screener.html · Simply the Web's Best Financial Charts You can find analyst
rating from MSN money For instance, ANALYSTS RATINGS Zacks average
brokerage recommendation is Moderate Buy
How to pick stocks Capital Asset Pricing
Model (CAPM)Explained http://www.youtube.com/watch?v=JApBhv3VLTo Ranking stocks using
PEG ratio http://www.youtube.com/watch?v=bekW_hTehNU Summary of stock
screening rules from class discussion PEG<1 PE<15 (? FB’s PE>100?) Growth rate<20 ROE>10% Analyst
ranking: strong buy only Zacks average =1 (from Ranking stocks
using PEG ratio) current
price>5 
Useful website money.msn.com/investing zacks.com minyanville.com moneychimp.com navellier.investor.com/portfoliograder/ nasdaq.com marketwatch.com superstockscreener.com gurufocus.com portfoliomoney.com stockconsultant.com marketgrader.com moderngraham.com stockpickr.com stockta.com thestreet.com askstockguru.com quotes.wsj.com oldschoolvalue.com fool.com analystratings.com barchart.com stock2own.com theonlineinvestor.com seekingalpha.com 

Week4 
For
discussion: ·
Stockholders’ rights ·
Risk and return –
where to find how risky the stock is 2. Calculate stock prices 1) Given next dividends and price Po= Po= + Po= + + Po= + ++ …… 2) Given all dividends – Dividend growth model Po= D1/(rg) or
Po= Do*(1+g)/(rg) R = D1/Po+g = Do*(1+g)/Po+g D1=Do*(1+g); D2= D1*(1+g)… g= rD1/Po = r Do*(1+g)/Po Capital Gain yield = g Dividend Yield = r – g = D1 / Po = Do*(1+g) / Po Calculator
for Dividend Growth Model (www.jufinance.com/stock) Exercise: 1. Consider the valuation of a
common stock that paid $1.00 dividend at the end of the last year and is
expected to pay a cash dividend in the future. Dividends are expected to grow
at 10% and the investors required rate of return is 17%. How much is the
price? How much is the dividend yield? Capital gain yield? 2. The current market price of
stock is $90 and the stock pays dividend of $3 with a growth rate of 5%. What
is the return of this stock? How much is the dividend yield? Capital gain
yield? 3.
How to pick stocks – Does it work? PE ratio PEG ratio (peg ratio vs. PE ratio
– video) HOMEWORK
(Due with final ) 1. Northern Gas recently paid a $2.80 annual dividend on
its common stock. This dividend increases at an average rate of 3.8 percent
per year. The stock is currently selling for $26.91 a share. What is the
market rate of return? (14.60 percent) 2. Douglass Gardens pays an annual dividend that is
expected to increase by 4.1 percent per year. The stock commands a market
rate of return of 12.6 percent and sells for $24.90 a share. What is the
expected amount of the next dividend? ($2.12) 4. The current market price of
stock is $50 and the stock is expected to pay dividend of $2 with a growth
rate of 6%. How much is the expected return to stockholders? (10%) 5. Investors of Creamy Custard common
stock earns 15% of return. It just paid a dividend
of $6.00 and dividends are expected to grow at a rate of 6% indefinitely.
What is expected price of Creamy Custard's stock? ($70.67) Class
Videos of this week Homework
Video of this week 
To learn about nonconstant growth of dividend
(Here dividend growth model will not work), please refer to the following
calculator (FYI, not required) (www.jufinance.com/nonconstant_dividend) FYI: Po = Do*(1+g_{1}) / r + Do*(1+g_{1}) *(1+g_{2})
/ (r^{2})+ ... Do*(1+g_{1}) *(1+g_{2})*...(1+g_{n1})/
(r^{n1}) + Do*(1+g_{1}) *(1+g_{2})*...(1+g_{n1})_{*(}1+g_{n})/(rg_{n}) g_{1}: next year's growth rate; g_{n}: nth
year's growth rate; Po: current stock price If nonconstant dividend growth rates in the next several years
are not given, refer to the following equations. g_{1} = D_{1}/Do1; g_{2} = D_{2}/D_{1}1;
g_{3}=D_{3}/D_{2}1,... Until dividend growth rate
stays fixed. 

Week51 
Chapter 9 Capital Budgeting 1.
NPV Excel syntax Syntax NPV(rate,value1,value2, ...) Rate is the rate of
discount over the length of one period. Value1, value2, ... are 1 to 29 arguments
representing the payments and income. · Value1, value2, ... must be
equally spaced in time and occur at the end of
each period. NPV uses the order of
value1, value2, ... to interpret the order of cash flows. Be sure
to enter your payment and income values in the correct sequence. 2.
IRR Excel syntax Syntax IRR(values, guess) Values is an array or a reference
to cells that contain numbers for which you want to calculate the internal
rate of return. Guess is a number that
you guess is close to the result of IRR. Or, PI = NPV / CFo +1 Profitable index (PI) =1 + NPV / absolute value of CFo 3. MIRR( values, finance_rate, reinvest_rate ) Where the function arguments are as follows:
Modified Rate of Return:
Definition & Example (video)
https://study.com/academy/lesson/modifiedrateofreturndefinitionexample.html NPV, IRR, Payback Period calculator (www.jufinance.com/npv) Excel Template
 NPV, IRR, MIRR, PI, Payback, Discounted payback Chapter 9 Study Guide Part I: Single project Consider the following scenario. You are reviewing a new project and have estimated the following
cash flows: — Year
0: CF
= 165,000 — Year
1: CF =
63,120; NI = 13,620 — Year
2: CF
= 70,800; NI = 3,300 — Year
3: CF
= 91,080; NI = 29,100 Your required return for assets of this risk level is 12%. 1) Using payback period
method to make capital budgeting decision. 2) Using discounted payback
period method to make capital budgeting decision. 3) Using net present value
method (NPV) (answer: $12,627.41) 4) Using profitable index
method (PI) (answer: 1.077) 5) Using the Internal Rate of
Return method (answer: 16.13%) 6) Using modified IRR method
(MIRR, using 12% for both investment rate and financing rate. Answer: 14.79%) Part II:
MultiProjects
If the required rate of return is 10%. Which project shall you
choose? 1) How much is the cross over
rate? (answer: 11.8%) 2) How is your decision if
the required rate of return is 13%? (answer:
NPV of B>NPV of A) ·
Rule for mutually exclusive projects: (answer: Choose B) ·
What about the two projects are independent? (answer: Choose both) More on IRR – (nonconventional cash
flow) Suppose an investment will cost $90,000 initially and will generate
the following cash flows: – Year 1: 132,000 – Year 2: 100,000 – Year 3: 150,000 The required return is 15%. Should we accept or reject the
project? 1) How does the
NPV profile look like? (Answer:
Inverted) 2) IRR1= 10.11%  answer 3) IRR2= 42.66%  answer Exercise
An investment project has the following cash flows: CF0 = 1,000,000; C01 – C08 = 200,000 each If the required rate of return is 12%, what decision should be
made using NPV? How would the IRR decision rule be used for this project, and
what decision would be reached? How are the above two decisions related? HOMEWORK(Due with final) Year Cash flows 1 $8,000 2 4,000 3 3,000 4 5,000 5 10,000 1) How
much is the payback period (approach one)? 
4 years 2) If
the firm has a 10% required rate of return. How much is NPV (approach
2)? $2456.74 3) If
the firm has a 10% required rate of return. How much is IRR (approach
3)?  14.55% 4) If
the firm has a 10% required rate of return. How much is PI (approach
4)?  1.12 Question 2: Project with an initial cash outlay of $60,000
with following free cash flows for 5 years. Year FCF Initial
outlay –60,000 1 25,000 2 24,000 3 13,000 4 12,000 5 11,000 The firm has a 15% required rate of return. Calculate payback period, NPV, IRR and PI. Analyze your results. Question 3: Mutually Exclusive Projects 1) Consider
the following cash flows for oneyear Project A and B, with required rates of
return of 10%. You have limited capital and can invest in one but one
project. Which one? § Initial
Outlay: A = $200; B = $1,500 § Inflow: A
= $300; B = $1,900 2) Example:
Consider two projects, A and B, with initial outlay of $1,000, cost of
capital of 10%, and following cash flows in years 1, 2, and 3: A:
$100 $200 $2,000 B:
$650 $650 $650 Which project should you choose if they are mutually
exclusive? Independent? Crossover rate? 
‘Simple Rules’ for Running a Business
From the 20page cellphone contract to the fivepound employee handbook,
even the simple things seem to be getting more complicated. Companies have been
complicating things for themselves, too—analyzing
hundreds of factors when making decisions, or consulting reams of data to
resolve every budget dilemma. But those requirements might be wasting time
and muddling priorities. So argues Donald Sull, a lecturer at the Sloan School
of Management at the Massachusetts Institute of Technology who has also
worked for McKinsey & Co. and Clayton, Dubilier & Rice LLC. In the book Simple
Rules: How to Thrive in a Complex World, out this week from Houghton
Mifflin Harcourt HMHC 1.36%,
he and Kathleen Eisenhardt of Stanford University claim that
straightforward guidelines lead to better results than complex formulas. Mr. Sull recently spoke with At Work about what
companies can do to simplify, and why five basic rules can beat a 50item
checklist. Edited excerpts: WSJ: Where, in the business context, might “simple
rules” help more than a complicated approach? Donald Sull: Well, a common decision that people face in organizations is
capital allocation. In many organizations, there will be thick procedure
books or algorithms–one company I worked with had an
algorithm that had almost 100 variables for every project. These are very
cumbersome approaches to making decisions and can waste time. Basically, any
decision about how to focus resources—either people
or money or attention—can benefit from simple rules. WSJ: Can you give an example of how that simplification works in a
company? Sull: There’s a German company called Weima GmBH that makes shredders. At one point,
they were getting about 10,000 requests and could only fill about a thousand
because of technical capabilities, so they had this massive problem of
sorting out which of these proposals to pursue. They had a very detailed
checklist with 40 or 50 items. People had to gather data and if there were
gray areas the proposal would go to management. But because the data was hard
to obtain and there were so many different pieces, people didn’t always fill out the checklists completely. Then
management had to discuss a lot of these proposals personally because there
was incomplete data. So top management is spending a disproportionate amount
of time discussing this lowlevel stuff. Then Weima came up with guidelines that the
frontline sales force and engineers could use to quickly decide whether a
request fell in the “yes,” “no” or “maybe”
category. They did it with five rules only, stuff like “Weima had to collect at least 70% of the
price before the unit leaves the factory.” After that, only the “maybes” were sent to management.
This dramatically decreased the amount of time management spend evaluating
these projects–that time was decreased by almost a
factor of 10. Or, take Frontier Dental Laboratories
in Canada. They were working with a sales force of two covering the entire
North American market. Limiting their sales guidelines to a few factors that
made someone likely to be receptive to Frontier—stuff
like “dentists who have their own practice” and “dentists with a website”—helped focus their efforts and increase sales 42% in a
declining market. WSJ: Weima used five factors—is
that the optimal number? And how do you choose which rules to follow? Sull: You should have four to six rules. Any more than that, you’ll spend too much time trying to follow everything
perfectly. The entire reason simple rules help is because they force you to
prioritize the goals that matter. They’re easy to
remember, they don’t confuse or stress you, they save
time. They should be tailored to
your specific goals, so you choose the rules based on what exactly you’re trying to achieve. And you should of course talk to
others. Get information from different sources, and ask them for the top
things that worked for them. But focus on whether what will work for you and
your circumstances. WSJ: Is there a business leader you can point to who has embraced
the “simple rules” guideline? Donald Sull: Let’s look at when Alex Behring took
over America
Latina Logistica SARUMO3.BR +1.59%,
the Brazilian railway and logistics company. With a budget of $15 million,
how do you choose among $200 million of investment requests, all of which are
valid? The textbook businessschool
answer to this is that you run the NPV (net present value) test on each
project and rankorder them by NPV. Alex Behring knows this. He was at the
top of the class at Harvard Business School. But instead Similarly, the globalhealth
arm of the Gates Foundation gets many, many funding requests. But since they
know that their goal is to have the most impact worldwide, they focus on
projects in developing countries because that’s where
the money will stretch farther. FYI The application of IRR in
academic studies A study in return of education by
Si, Foley, Boylan, and Cebula. 
Net Present Value NPV Explained with
NPV
Example for NPV Calculation (Cartoon, video)
http://www.youtube.com/watch?v=7FsGpi_W9XI Using
Excel for Net Present Values, IRR's and MIRR's


Week52 
Chapter
14 Cost of Capital For class discussion: What is WACC? Why is it important? WACC increases, good
or bad to stock holders? How to apply WACC to figure
out firm value? What is DCF? One option (if beta is given, refer to chapter
13) Another option (if dividend is given): WACC Formula WACC calculator (annual coupon bond) (www.jufinance.com/wacc) WACC calculator (semiannual coupon
bond) WACC
Calculator help videos FYI Summary of Equations Discount rate to figure out the value of
projects is called WACC (weighted average cost of capital) WACC = weight of debt * cost of debt + weight of equity *( cost of equity) Wd=
total debt / Total capital = total
borrowed / total capital We=
total equity/ Total capital Cost
of debt = rate(nper, coupon, (price – flotation costs), 1000)*(1tax rate) Cost
of Equity = D1/(Po – Flotation Cost) +
g D1:
Next period dividend; Po: Current stock price; g: dividend growth rate Note:
flotation costs = flotation percentage * price Or if beta is given, use CAPM model
(refer to chapter 13) Cost of equity = risk free rate +
beta *(market return – risk free rate)
Cost of equity =
risk free rate + beta * market risk premium In Class Exercise: A firm borrows money from bond market. The
price they paid is $950 for the bond with 5% coupon rate and 10 years to
mature. Flotation cost is $40. For the
new stocks, the expected dividend is $2 with a growth rate of 10% and price
of $40. The flotation cost is $4. The company raises capital in equal proportions
i.e. 50% debt and 50% equity (such as total $1m raised and half million is
from debt market and the other half million is from stock market). Tax rate
34%. What is WACC (weighted average cost of capital, cost of capital)? (Answer: 9.84%) 1) Why does the firm raise capital from the financial market? Is there of any costs of doing so? What do you think? 2) What is cost of debt? (Kd = rate(nper, coupon, (price – flotation costs $)), 1000)*(1tax rate)) 3) Cost of equity? (Ke = (D_{1}/(Price – flotation costs $)) +g, or Ke = Rrf + Beta*MRP)) Why no tax adjustment like cost of debt? 4) WACC=Cost of capital = Percentage of Debt * cost of debt + percentage of stock * cost of stock = Wd*Kd + We* Ke Meaning:
For a dollar raised in the capital market from debt holders and stockholders,
the cost is WACC (or WACC * 1$ = several cents, and of course, the lower the
better but many companies do not have good credits) No
homework for chapter 14 This Week’s Class Videos Part
I Part II Part
III Part IV Part
V Homework help videos 
FYI As of today,
Walmart Inc's weighted average cost of capital is 5.72%. Walmart Inc's ROIC % is 11.27% (calculated using TTM income statement
data). Walmart Inc generates higher returns on investment than it costs the
company to raise the capital needed for that investment. It is earning excess
returns. A firm that expects to continue generating positive excess returns
on new investments in the future will see its value increase as growth
increases. https://www.gurufocus.com/term/wacc/WMT/WACC/Walmart%2BInc Amazon.com
Inc (NAS:AMZN) WACC %:11.79% As of Today As of today,
Amazon.com Inc's weighted average cost of capital is 11.79%. Amazon.com Inc's ROIC % is 31.81% (calculated using TTM income statement
data). Amazon.com Inc generates higher returns on investment than it costs
the company to raise the capital needed for that investment. It is earning
excess returns. A firm that expects to continue generating positive excess
returns on new investments in the future will see its value increase as
growth increases. https://www.gurufocus.com/term/wacc/AMZN/WACCPercentage/Amazon.com%20Inc Apple
Inc (NAS:AAPL) WACC %:7.64% As of Today As of today,
Apple Inc's weighted average cost of capital is 7.64%. Apple Inc's ROIC % is 35.90% (calculated using TTM income statement
data). Apple Inc generates higher returns on investment than it costs the
company to raise the capital needed for that investment. It is earning excess
returns. A firm that expects to continue generating positive excess returns
on new investments in the future will see its value increase as growth
increases. https://www.gurufocus.com/term/wacc/AAPL/WACC/Apple%2Binc Cost of Capital by Sector (US) Date of Analysis: Data used is as of January 2019
