Summary Fundamentals of Corporate Finance

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ISBN-10 0273753460 ISBN-13 9780273753469
216 Flashcards & Notes
15 Students
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This is the summary of the book "Fundamentals of Corporate Finance". The author(s) of the book is/are Jonathan B Berk Peter M DeMarzo Jarrad V T Harford. The ISBN of the book is 9780273753469 or 0273753460. This summary is written by students who study efficient with the Study Tool of Study Smart With Chris.

Summary - Fundamentals of Corporate Finance

  • 2.3 Balance Sheet Analysis

  • How do you calculate Market-to-Book Ratio?
    Market Value of Equity devided by Book Value of Equity
  • How do you calculate Book Debt-to-Equity Ratio?
    Total Debt devided by Book Value of Total Equity
  • How do you calculate Market Debt-to-Equity Ratio?
    Total Debt devided by Market Value of Total Equity
  • How do you calculate Current Ratio?
    Current Assets devided by Current Liabilities
  • How do you calculate Quick Ratio?
    Current Assets - Inventory devided by Current Liabilities
  • 2.4 The Income Statement

  • How do you calculate a Gross/Net Profit/Operating -Margin?
    By deviding by Sales
  • How do you calculate the Leverage Ratio? (also Interest coverage ratio (TIE))
    Operating Income devided by Interest Expense
  • How do you calculate the Return on equity/assets?
    By deviding Net Income by Assets/Book Value of Equity
  • How do you calculate the Price-to-earnings ratio?
    Share Price divided by Earning per Share
  • How do you calculate Accounts receivable days?
    Account Receivable divided by Average Daily Sales
  • How do you calculate Fixed Asset Turnover?
    Sales divided by Fixed Assets
  • How do you calculate Total Asset Turnover
    Sales divided by Total Assets
  • How do you calculate Inventory Turnover?
    Costs of Goods Sold divided by Inventory
  • 5.1 Interest Rate Quotes and Adjustments

  • When you buy a car with borrowed money, of what is the interest the price?
    The price to be able to convert money paid in the future to a car right now
  • Why is it important to convert interest rates to the same time unit before comparison?
    Because you cannot compare a daily interest rate with a yearly interest rate 
  • What is a different name for the effective anual rate?
    The annual percentage yield
  • What is the effective annual rate?
    The effective interest paid in a year time unit
  • How do you calculate the equivalent interet rate at a different period length? E.g. EAR of r to monthly, or 5 yearly?
    (1+r)^n - 1
    So for monthly n=1/12
    For 5 yearly n=5
  • In what term is the common way to quote interest rates?
    Annual percentage rate
  • What does the annual percentage rate do with compounding?
    It doesn't take it into account
  • What is the actual effective interest rate of a 6% APR compounded monthly?
    6/12 = 0.5 monthly interest
    1.005^12 - 1 = 6.17% after 12 month
  • Can the APR be used as a discount rate?
    No, you have to take compounding into account
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Latest added flashcards

What formula is known as the WACC-equation?
rwacc = rEE% + rpfdP% + rD(1-TC)D%
What WACC should one use for expansion/acquisition into an industry the initial firm is not active in?
The wacc of the firm being acquired/a comparable firm
What three steps does one follow when applying the WACC-method?
1 Determine the incremental free cash flow of the investment
2 Compute the weighted average cost of capital
3 Compute the value of the investment, including tax benefit of leverage by using the WACC
What is a debt-equity ratio?
A ratio of the market value of debt to the market value of equity
What activity is referred to as the WACC-method?
Discounting future incremental free cash flows using the firm's WACC
What is the levered value of a project?
The value including the benefit of the interest tax deduction
What formula does one use to determine net debt?
Net debt = Debt - Cash and Risk-Free Securities
When determining the cost of common stock capital, what method is prefered?
CAPM
With what formula does one calculate the Cost of Equity with the Constant Dividend Growth Model?
Cost of Equity = Div1/PE + g
How does one estimate the market risk premium?
comparing historical returns on a market proxy to historical risk-free rates