Fin 301 Formula Sheet

FIN 301 FORMULA SHEET

Basics

Rd = cost of new debt before tax

T = tax rate

Rd(1-T) = cost of new debt after tax

Rps = cost of preferred stock (after tax) = Dps/(Pp-f)

Rs = cost of common stock

Re = cost of new common stock

Ra = WACC

Wd  weight of debt = Total Debt/Total Capital

Wps = weaight of P,S = Total P.S./ Total Capital

Ws = weight of equity = Total Equity/ Total Capital

Wi = weight of component i

Ri = after tax cost of I

Cost of Debt Before Taxes

Nd = I {1-[1/)1+d)^n]}/ rd + Pn/ (1+rd)^n

Pn = maturity Value

F = flotation

Nd = P-F where p is Selling price

Cost of Preferred Stock

Rps = Dps/ (Pp – F)

Pp= selling price of preferred

Dps = preferred Dividend

Common Equity

RE + New Common Stock

Cost of Equity (Ks)

Rs = (D1/P) + G

=[D0(1+G) / P] +G

New Common Stock

Re = [D1/ (P0-F)] +G

Or [D0 (1+g)/ {P0-F}] +G

Discounted CF Model (DCF)

=sum Dt/[(1+re)^t]

= [D0(1+g1)^n(1+g2) / (re-g2)][1/(1+re)^n]

WACC

Ra = Wd*Rd(1-T) + Wp*Rps + Ws*Rs + We*Re

Cost of Capital

Nd = sum  [1/(1+rd)^t] + Pn/1+rd)^n

Pn  = maturity value/par value

If Nd Less than Pn