Corporate Finance Theory

Formula Sheet

PV 
FV F
T PV 
(1  R ) (1  R )T
NPV   cos t  PV
C C C FV
FV  C 0  (1  R )T
PV     
(1  R ) (1  R ) 2 (1  R ) T (1  R )T
T
C
NPV  C 0   (1  Rt ) t 1
PV  C  
1 

FV
t 1
C  R R (1  R )T  (1  R )T
PV 
R m
 R
 R
m T EAR  1    1
FV  C 0  1    m
 m 
C
 1  PVPerpetuity 
1  T  R
(1  r ) 
PV  C   Divt 1 Pt 1
 r  Pt  
  1 R 1 R
 
Div1
 (1  r )T  1 P0 
FV  C    R
 r  Div1
P0 
 1 g 
T 
Rg
1    
PV  C   1 r   Div1 Div 2 DivT PT
 rg  P0     
  (1  R ) (1  R ) 2
(1  R ) T
(1  R )T
 
DivT 1
PT 
Rg
DivT 1
T t
Divt (1  g t ) R  gc
P0   (1  R ) T

(1  R )T
t 1
g  Retention ratio  Return on retained earnings
EPS
Price per share   NPVGO
R
 Cum CFt
PBP  t 
CFt 1
Cum PV of CFt
DPBP  t 
PV of CFt 1
Average NI
AAR 
Average Investment
T
CF
NPV   (1  Rt ) t  (CF 0 )
t 1
T
CF
 (1  IRR
t
)t
 (CF 0)  0
t 1
T
CF
 (1  Rt ) t
PI  t 1
CF0
T

T
COF
 CIFt (1  R)T  t
 (1  R tf )  t 1(1  MIRR)T
t 0
NPV
EAA 
 1 
1  T 
 (1  R ) 
 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
 FC  Depreciati on
BE Accounting 
Price  Variable Cost
Investment
EAC 
 1 
1  T 
 (1  R ) 
 R 
 
 
EAC  FC  (1  t c )  Depreciati on  t c
BE Financial 
(Price - Variable Cost)  (1 - t c )
%NPV
Sensitivity 
%Variable
Divt 1
Dividend Yield 
Pt
Pt 1  Pt
Capital Gain Yield 
Pt
_ R1  R2    RT
R
T
1  _ _ _ 
VAR   2   ( R1  R ) 2  ( R2  R) 2    ( RT  R) 2 
T  1  
 _
2
_
2
_
2
SD    ( R1  R )  ( R2  R)    ( RT  R) 
 
Geometric Average  T (1  R1 )  (1  R2 )    (1  RT )  1
T 1 N T
R(T )   Geometric Average   Arithmetic Average
N 1 N 1
T _ _
 ( R At  R A )( RBt  R B )
COV ( R A , R B )   AB  t 1
T 1
COV ( R A , R B )
 AB  Corr ( R A , R B ) 
 A  B
COV ( R A , RM )
 
2
M
 2  W A2  A
2
 W B2  B
2
 2W A W B  AB  A  B
_ _
R  R F    (R M  R F )
S B
 asset    equity    debt
BS BS
 B
 equity   asset 1  
 S
 B
 equity   asset 1  (1  t c ) 
 S
S B
R WACC   Rs   R b  (1  t c )
BS BS
V  BS
B
R s  R 0   (1  t c )  ( R 0  R b )
S
EBIT  (1  t c )
Vu 
R0
EBIT  (1  t c )
Vl  tc B
R0
( EBIT  R b  B )  (1  t c )
S 
Rs
VT  S  B  G  L  V M  V N
APV  NPV  t c  B
UCF  LCF  (1  t c ) R b B
 UCF t
NPV   t
 Initial Investment
t  1 (1  R WACC )
 UCF t
APV :  t
 Additional effects of debt  Initial Investment
t  1 (1  R 0 )
 LCF t
FTE :  t
 ( Initial Investment  Amount Borrowed )
t  1 (1  R s )
 UCF

t
WACC :  Initial Investment
t
t  1 (1  R WACC )
 (1  t c )  B 
 equity   unlevered 1  
 S 
 DIV1
V0  Div0 
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 )
S  2 
ln    R  t
 E   2 

d1 
 2t
d 2  d1   2 t
Firm' s Value net of Debt
Gain from a Single Call   Exercise Price
#
Firm' s Value net of Debt - Exercise Price x # w
Gain from a Single Warrant   Exercise Price
# # w