Corporate Finance formula

N u m b e r
1

Time Value of Money Formula For:

Annual Compounding

Compounded (m) Times per Year

Continuous Compounding

Future Value of a Lump Sum. ( FVIFi,n ) Present Value of a Lump Sum. ( PVIFi,n ) Future Value of an Ordinary Annuity ( FVIFAi,n ) Future Value Annuity Due Present Value of an Ordinary Annuity. ( PVIFAi,n ) Present Value Annuity Due Present Value of a Perpetuity. Continuous growing perpetuity Effective Annual Rate given the APR.

F V = P V ( 1 + i )n
PV = FV ( 1 + i )
-n

i ⎞ ⎛ FV = PV ⎜1 + ⎟ ⎝ m⎠

nm

FV = PV( e )in
- nm

2

i ⎞ ⎛ PV = FV ⎜1 + ⎟ ⎝ m⎠

PV = FV( e )-in

3

⎡ ( 1 + i )n - 1 ⎤ FVA = PMT ⎢ ⎥ i ⎣ ⎦
FV Annuity Due = FVA*(1+ i )

⎡ (1 + (i / m) )nm − 1⎤ FVA = PMT ⎢ ⎥ i/m ⎣ ⎦
FV Annuity Due = FVA*(1+ ieffective )

4

5

⎡1 - ( 1 + i )- n ⎤ PVA = PMT ⎢ ⎥ i ⎣ ⎦
PV Annuity Due = PVA*(1+ i )

⎡1 - ( 1 + (i / m) )- nm ⎤ PVA = PMT ⎢ ⎥ i/m ⎣ ⎦
PV Annuity Due = PVA*(1+ ieffective )

6 7 8 9

PVperpetuity =

PMT i

PVperpetuity =

PMT [(1 + i )1/ m − 1]
m

PV=PMT /(i-g)
EAR = APR

i ⎞ ⎛ EAR = ⎜ 1 + ⎟ - 1 m⎠ ⎝
PV = PV (coupons) + PV (face value)

EAR = e i - 1

10 11

Bond price Rate of return

12

Current yield

13

Real and nominal rate of return

14

Expected return

15 Dividend Yield 16 Constant Growth Dividend Discount Model Dividend Discounted Model 17 18 Equivalent annual cost (EAC) Estimating Expected Rates of Return with Constant Growth Dividend Growth rate g = ROE X plowback ratio 19 20 21 Return on Equity Present Value of Growth Opportunity P/E ratio NPV NPV(A+B) Percentage return Variance σ2 Standard deviation σ P/E = P0/ EPS PV – (required investment) NPV (A+B) = NPV (A) + NPV (B) 22 23 24 25 26 27 28 29 General Cost of capital 30 Cost of capital with only Debt and Equity 31 32 33 34 After-tax Cost of Capital: WACC Covariance of asset 1 and asset 2 Two assets portfolio variance N assets portfolio variance .

rf = β (rm – rf ) where rm is the market return and rf is the risk free rate where rm is the market return and rf is the risk free rate Return = α + b1(rfactor1) + b2(rfactor2) + b3(rfactor3) + …+ noise r. the logarithm to the base e PMT = the periodic payment or cash flow g = continuous growth rate EPS= earns per share NPV= net present value n = the number of periods EAR = the Effective Annual Rate e = the base of the natural logarithm ≈ 2.rf =bmarket(rmarket factor)+bsize(rsize factor)+ bbook-to-market(r book-to-market factor) i = the nominal or Annual Percentage Rate m = the number of compounding periods per year ln = the natural logarithm.35 Beta for one asset i : βi 36 General portfolio β Portfolio β with only Debt and Equity CAPM model Risk premium ( r .rf ) Expected return on preferred stock Arbitrage Pricing Theory Fama-French three-factor model 37 38 39 40 41 42 r = rf + β (rm – rf ) r .71828 Perpetuity = an infinite annuity DIV=dividend P0= current price R = return Rm market portfolio return ρ12 correlation between asset 1 and 2 = mean of x Rf risk free return .

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