Define the WACC and explain the relationship between the WACC

1-Define the WACC and explain the relationship between the WACC, the debt level in the capital structure and the firm value.2- Define the cost of equity, the risk free rate used, the Beta and the Equity risk premium.3- Explain the debt rating, and it’s relationship with the cost of debt.4- Consider the EBIT Chart. (Check the Chart used at Continental Carriers Case)i. What Information does it provide?ii. What inferences can we draw from it?.5- Be ready to discuss the possibility to add debt (if it doesn’t already have it) or more debt (if debt already exists at the balance sheet) AT DIFFERENT COMPANIES. (only one of the following companies should be discussed at the exam: A big/mid size/small company with no debt/some debt/a lot of debt, stable product/unstable product/, low/high growing sales, seasonal sales/leveled sales, low/high margins, with barriers to entry / no barriers to entry, good managers/bad managers, different types of investors as pension funds/mutual funds/retail investors/retirees, trading at a huge Book value multiple, BV multiple (ie: 4x), or 1x, or 0,4x, etc.6- Briefly explain the equity investor expected return.7- Describe the Agency Problem.8- Describe the Signaling effect of the dividend policy.9- EXERCISE: be ready to calculate the Payout Ratio given P&L information as Net Income, Depreciation and Amortization, Capital expenditures, net increase in working capital, dividends, number of shares.10- Briefly describe the factors that make the dividend policy relevant.11- Explain in detail the signaling Effect.12- Explain in detail the Taxes and Clienteles effect.13- Explain in detail the Transaction Costs.14- Explain in detail the Agency Problem.15- What happens to the hurdle rate used to value a project if the parent company require a fixed rate of return from the regional companies, and there are a number of operating companies under each regional company. The use of non-recourse debt is allowed at regional and affiliate level. Please, give an example if the fixed return to the parent is 10% and the cost of debt of 6,5% at the regional and operating companies.16- Describe what factors affecting the future cash flows must be adjusted at the cash flow level and what factors can be adjusted at the WACC level.17- Describe the sustainable growth rate and be ready to calculate it given Net profit, equity and dividend.18- Be ready to calculate the fair price for a company given sales and its expected growth rate, Ebit margin, Net Capex, Change in Working Capital, Tax rate, WACC, terminal growth rate, debt level, number of shares . A calculator will be required to work the numbers.19- Be ready to value a company using multiples, PER, Book Value (BV), Comparable companies multiples.20-You and some colleges are working at a company and you are analyzing the possibility to do an LBO at company XYZ, (Balance sheet and P&L information will be given, actual and forecast)). You will be given information on your total savings amount that could be invested in this LBO, the amount that the bank will lend you and the private equity required rate of return to invest in your company (and how they want to get the return: interest rate and capital appreciation). Be ready to calculate the equity stake the venture capitalist will require from you to finance your “LBO”21- Be ready to calculate the value of a company using a sum of the parts valuation. Sector multiples will be given to you.22-What is an ADR? What advantages does it offer relative to a domestic listing?23- Define transaction exposure.24- Describe the techniques used to manage currency risk.25- Be ready to calculate the cost of hedging a transaction risk exposure using forwards, money market hedge and options.26- Describe the way competitive exposures due to currency fluctuation are measured. How would you hedge this risk?27- Describe the translational exposure risk, it’s effect or not on the EPS, and ways to hedge it.28- Define the EVA, use the formula, use an example to calculate it. Relate the EVA method and the NPV method.29- Define a company Inversion, the importance of tax credit and tax deficits and the allocation of debt interest cost.As promised, some of these questions will be at the exam, expect both essay and multiple choice questions. Bring your own calculator, mobile gadgets (IPhone, BB’s etc.) won’t be allowed