Formulae sheet: APS 1016H Final exam Summer 2016

Return on Equity (ROE) = Net Income / Total Equity

PE Ratio = Price per share / Earnings per share
Dividend payout ratio = Cash dividends/net income
FV = PV(1 + r)t where FV = future value PV = present value and r = required rate of
return
PV = FV / (1 + r)t where t = time
Perpetuity: PV = C / r, where C = annual Cash flow and r = required rate of return
Present value annuity : PVA = C({1 [1/(1 + r)]t } / r ) where C = annuity payment
Present value annuity due: PVA = C({1 [1/(1 + r)]t } / r ) x (1+r) where C = annuity
payment
Future value annuity FVA = C{[(1 + r)t 1] / r}
NPV = - PV of initial investment + sum PV of all future cash flow
IRR = discount rate which renders NPV = 0
EPS= Net income/shares outstanding
Bond Value = PV of coupons + PV of par
Bond value = C(( 1- 1/(1+r)t))/r + F/(1+r)t
(1 + R) = (1 + r)(1 + h) where nominal interest rates (R), real interest rates (r), and
inflation (h)
P0 = D0 (1 + g) / (R g) where P0 = price of stock today D0 = dividend per share today , R
= required rate of return and g = growth in dividends
R = (D1 / P0) + g
P0 = D1 / (R g)
E ( R ) = Oj x Pj where Oj = value of jth outcome and Pj = associated probability of
occurrence
Total risk = systematic risk + unsystematic risk
E(Ri) = Rf + [E(RM) Rf] I where E(Ri) = expected return on stock, Rf = risk free rate ,
E(RM) = expected return on market and I = stock beta
V = market value of the firm = D + E
WACC =weight equity x cost of equity + weight debt x cost of after tax debt
VU = EBIT(1 tC)/RU where VU = value of unlevered firm and R u = cost of unlevered
equity
VL = VU + Tc x B , where B = total long debt
RE = RU + (RU RD)(D/E)(1 tC) where RD = cost of before tax debt
PV tax shield on CCA= IdTc x 1 + 0.5 k - SndTc x
1
d+k
1+k
d +k
(1+k)n
In the above: I = Total Capital Investment, d = CCA tax rate, Tc = Corporate Tax Rate, k
= discount rate, Sn = Salvage value in year n, n = number of periods in the project

2 p=X2L2L + X2U 2U + 2XLXUCorrL,U L U

OCF1 = (S C)(1 tc) + tcD