Corporate Finance Theory

FRL 367
Formula Sheet
P. Sarmas

FV F
PV = PV =
(1 + R)T (1 + R )T
C C C FV
NPV = cos t + PV PV = + ++ +
(1 + R) (1 + R) 2
(1 + R) T
(1 + R)T
FV = C 0 (1 + R)T 1
1 FV
T PV = C +
T T
(1 + Rt ) t R R(1 + R) (1 + R)
C
NPV = C 0 +
m
t =1 R
EAR = 1 + 1
C m
PV =
R C
PV Perpetuity =
m T R
R
FV = C 0 1 + Pt =
Divt +1 Pt +1
+
m 1+ R 1+ R
1 P0 =
Div1
1
T R
(1 + r )
PV =C P0 =
Div1
r Rg

P0 =
Div1
+
Div 2
++
DivT
+
PT
(1 + r )T 1 (1 + R ) (1 + R ) 2 (1 + R )T (1 + R )T
FV =C DivT +1
r PT =
Rg
1 + g T DivT +1
1 T
Divt (1 + g t ) t
R gc
PV =C 1+ r P0 = +

T
rg t =1 (1 + R ) (1 + R)T
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
(1 + Rt )t + (CF 0)
CF
NPV =
t =1
T
(1 + IRRt )t + (CF 0) = 0
CF
t =1
T
(1 + Rt )t
CF

PI = t =1
CF0
T

T CIFt (1 + R)T t
(1 + R tf ) = t =1(1 + MIRR)T
COF
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 + Depreciation
BE Accounting =
Price Variable Cost
Investment
EAC =
1
1 (1 + R) T

R

EAC + FC (1 t c ) Depreciation 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

_ _ _

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

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

R1 + R2 + R3 + + RT
Arithmatic Average =
T

T 1 N T
R(T ) = Geometric Average + Arithmetic Average
N 1 N 1
 N
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

N
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

T _ _

(R At R A )( RBt R B )
COV ( RA , RB ) = AB = t =1
T 1

COV ( RA , RB )
AB = Corr ( RA , RB ) =
A B

COV ( RA , RM )
=
M2
 2
= W A2 A
2
+ W B2 B2 + 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
Rs = R0 + (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 : t
Initial Investment
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