Corporate Finance Theory

FRL 367
Formula Sheet
P. Sarmas
FV

PV =

PV =

(1 + R )T
C
C
C
FV
PV =
+
++
+
T
2
(1 + R) (1 + R)
(1 + R)
(1 + R)T

(1 + R)T
NPV = cos t + PV

FV = C 0 (1 + R)T
NPV = C 0 +

(1 + Rt ) t
C

t =1

PV =

C
R
m T

FV

PV

FV

PV

= C 0 1 +
m

T
(1 + r )
=C

(1 + r )T 1
=C

1 + g T
1

1+ r

=C

rg

1
1
PV = C
T
R R(1 + R)

FV
+
T
(1 + R)

EAR = 1 + 1
m
C
PV Perpetuity =
R
Divt +1 Pt +1
Pt =
+
1+ R 1+ R
Div1
P0 =
R
Div1
P0 =
Rg
Div1
Div 2
DivT
PT
P0 =
+
++
+
(1 + R ) (1 + R ) 2
(1 + R )T (1 + R )T
DivT +1
PT =
Rg
DivT +1
T
t
Divt (1 + g t )
R gc
P0 =
+
T
(1 + R)T
t =1 (1 + R )

g = Retention ratio Return on retained earnings

Price per share =

EPS
+ NPVGO
R

Cum CFt

PBP = t +

CFt +1

DPBP = t +

Cum PV of CFt

PV of CFt +1
Average NI
AAR =
Average Investment

NPV =

(1 + Rt )t + (CF 0)
CF

t =1

(1 + IRRt )t + (CF 0) = 0
CF

t =1

(1 + Rt )t

PI = t =1

CF

CF0
T

CIFt (1 + R)T t

(1 + R tf ) = t =1(1 + MIRR)T
COF

t =0

EAA =

NPV
1

1
T
(1 + R)

(1 + Rnominal ) = (1 + rreal ) (1 + Inflation)

CFtnominal = CFtreal (1 + inflation) t
EBIT = Sales Cost Depreciation
Taxes = EBIT t c
OCF = EBIT Taxes + Depreciation
NI = EBIT Taxes
OCF = NI + Depreciation
OCF = ( Sales Cost ) (1 t c ) + Depreciation t c
FCF = OCF NWC Net Capital Expenditure

BE Accounting =
EAC =

FC + Depreciation
Price Variable Cost

Investment
1

1 (1 + R) T

BE Financial =

EAC + FC (1 t c ) Depreciation t c
(Price - Variable Cost) (1 - t c )

Sensitivity =

%NPV
%Variable

Dividend Yield =

Divt +1
Pt

Capital Gain Yield =

R=

Pt +1 Pt
Pt

R1 + R2 + + RT
T

VAR = 2 =

_
_
_
1

( R1 R) 2 + ( R2 R) 2 + + ( RT R) 2
T 1

_
_
_

SD = = ( R1 R) 2 + ( R2 R) 2 + + ( RT R) 2

Geometric Average = T (1 + R1 ) (1 + R2 ) (1 + RT ) 1
Arithmatic Average =

R(T ) =

R1 + R2 + R3 + + RT
T

T 1
N T
Geometric Average +
Arithmetic Average
N 1
N 1

E ( R) = Pr . j xR j = Pr .1 xR1 + Pr .2.xR2 + + Pr . N xR N
j =1

_
_
_

VAR = 2 = Pr .1 x( R1 R) 2 + Pr .2 x( R2 R) 2 + + Pr .. N x( RT R) 2

_
_
_

SD = = Pr .1 x ( R1 R) 2 + Pr .2 x( R2 R) 2 + + Pr . N ( RT R) 2

E ( R p ) = W j xE ( R j ) = W A xE ( R A ) + WB xE ( RB ) + + W N xE ( R N )
j =1

p = W A2 x A2 + WB2 x B2 + 2 xW A xWB x A& B x A x B

COV ( RA , RB ) = AB =

AB = Corr ( RA , RB ) =

COV ( RA , RM )

M2

(R
t =1

At

R A )( RBt R B )
T 1

COV ( RA , RB )
A B

2
= W A2 A
+ W B2 B2 + 2W A W B AB A B

R = R F + (R M R F )
S

asset =

B+S

equity +

B+S

equity = asset 1 +

equity = asset 1 + (1 t c )

R WACC =

S
B+S

debt

Rs +

B
B+S

R b (1 t c )

V = B+S
Rs = R0 +
Vu =
Vl =
S =

(1 t c ) ( R 0 R b )
S
EBIT (1 t c )
R0

EBIT (1 t c )

+tc B

R0

( EBIT R b B) (1 t c )
Rs

VT = S + B + G + L = V M + V N
APV = NPV + t c B
UCF LCF = (1 t c ) R b B

NPV =

t = 1 (1 +

APV :

R WACC )

UCF t

t
t = 1 (1 + R 0 )

FTE :

UCF t

LCF t

t = 1 (1 + R s

WACC :

Initial Investment

+ Additional effects of debt Initial Investment

( Initial Investment Amount Borrowed )

UCF t

t
t = 1 (1 + R WACC )

equity = unlevered 1 +

Initial Investment

(1 t c ) B

V0 = Div0 +

DIV1
1 + Rs

Dividend Change = Div1 Div0 = S (tEPS1 Div0 )

Call Option Value = Stock Price - Strike Price
Put Option Value = Strike Price - Stock Price
Price of Underlying Stock + Price of Put = Price of Call + Present Value of Exercise Price
Swing of Call
Delta =
Swing of Stock
Value of Call = Stock Price x Delta - Amount Borrowed
Black - Scholes Model :
C = SN (d1 ) Ee Rt N (d 2 )

d1 =

2
S
ln + R +
t
2
E
2t

d 2 = d1 2 t
Firm' s Value net of Debt
Exercise Price
#
Firm' s Value net of Debt - Exercise Price x # w
Exercise Price
Gain from a Single Warrant =
#+ # w
Gain from a Single Call =