SOME USEFUL FORMULAS

Equivalent annual cash flow EAC = PV / annuity factor

NPV = {[Revenue Variable cost Fixed cost Depreciation] x (1 tax rate) + Depreciation} x
[annuity factor] - Investment
Degree of Operating Leverage DOL = % change in profits / % change in sales
or DOL = 1 + (fixed costs including depreciation / pretax profits)
Net Return on Investment = Book Return on Investment minus Cost of Capital
where Book ROI = after-tax operating income / net book value of assets
Economic Value Added

EVA = income earned (cost of capital x investment)

Economic Income = Cash Flow Economic Depreciation

Economic Rate of Return = Economic Income / PV at start of year
CAPM

r = rf + (rm rf)

Company Cost of Capital = rD(D/V) + rE (E/V)

WACC = rD(1-Tc)(D/V) + rE (E/V)
assets = revenue[1 + PV(fixed cost)/PV(asset)]
assets = D (D/V) + E (E/V)
Opportunity Cost of Capital = r = rD(D/V) + rE (E/V)
rE = rA + (rA - rD)D/E
E = A + (A - D) D/E
PV(tax shield) = TcD
Relative advantage formula

RAF = (1 Tp) / [(1 TpE)(1 Tc)]

Net tax advantage of debt = (1 Tp) - [(1 TpE)(1 Tc)]

Number of shares issued under the DRP = dividend amount / DRP issue price
Share price (ex-dividend) = DIV1 / (r - g)
NPV from granting credit to a customer = p[PV(REV)] PV(COST)
Effective annual rate of interest = (1 + i)m - 1
where i is the interest rate per period and m is the number of periods in a year
(1 + foreign currency return) = (1 + domestic currency return) * [(1 + foreign interest rate) / (1 +
domestic interest rate)]
Forward Rate = Spot rate x [(1 + domestic interest rate)t / (1 + foreign interest rate)t]