Formula Sheet

Week 2 – Corporate Financial Mathematics 1

 FV (Single CF)=C ( 1+r )n
C
 PV (Single CF)=
( 1+r )n
C1 C2 CN
 PV (mutiple CFs)=C0 + + + …+
( 1+r ) ( 1+r )2 ( 1+ r )N
C
 PV ( Ordinary Perpetuity )=
r
C
 PV ( Perpetuity Due )=C +
r
C 1
 PV (Ordinary Annuity)= r 1− ( ( 1+r ) N )
C 1
 PV ( Annuity Due)= r 1− ( (1+ r )N )
(1+ r)

C
 FV (Ordinary Annuity)= ( ( 1+ r )N −1 )
r
C
 FV ( Annuity Due )= ( ( 1+r ) N−1 ) (1+ r )
r

Week 3 – Corporate Financial Mathematics 2

C
 PV ( Growing Ordinary Perpetuity )=
r−g
N
C 1+ g
 PV (Growing Ordinary Annuity)=
r−g
1−
( ( ))
1+r

PV
C (Ordinary Annuity)= ❑
 1 1
r( (
1−
(1+r )N ))
APR m
 1+ EAR= 1+ ( m )=(1+ EPR)m

APR
 EPR=
m
Nominal Rate−Inflation Rate
 Real rate= ≈ Nominal−Inflation Rate
1+ Inflation Rate

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Week 4: Bond and Stock Valuation
Coupon Rate × Face Value
 CPN =
Number of Coupon Payments per Year
1 /n
Face Value
 1+YTM n= ( Price )
1 1 FV
 P=CPN × y 1− (
( 1+ y ) N
+
)
( 1+ y )N
¿1 + P1−P0 ¿1 P1−P0
 R E= = +
P0 P0 P0
¿1 ¿2 ¿N PN
 P 0= + 2
+…+ N
+ N
1+r E ( 1+r E ) ( 1+r E ) ( 1+r E )
¿1
 P 0=
rE
¿1
 P 0=
r E−g
¿1 ¿2 ¿N 1 ¿
 P0= 1+r + +…+ +( ) N +1
( 1+r E ) ( 1+ r E ) r E−g
2 N N
E ( 1+r E )

Week 5 – Investment Decision Rules

 NPV =PV ( Projec t ' sfuture cash flows )−PV (Projec t ' scosts )
C1 C2 CN
 NPV =C0 + + 2
+… .+ N
(1+ r) (1+r ) (1+r )
Terminal value inflows
 PV outflows = N
(1+ MIRR )

Payback period=Years before cost recovery + Remaining cost ¿ recover ¿
Cashflow duringthe year
PV
EAA= N
 1 1
r ( ( ))
1−
1+r
Value Created NPV
 Profitability Index= =
ResourceConsumed Resource Consumed

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Week 6 – Fundamentals of Capital Budgeting and Working Capital Management

Incremental Earnings =( Incremental Revenues−IncrementalCost −Depreciation ) × ( 1−Tax Rate )


FreeCash Flow=( Revenues−Costs−Depreciation ) × ( 1−Tax Rate ) + Depreciation−CapEx−Change∈NWC
+ After tax CF ¿ asset sale(if any)−Oppotuinity Cost (if any )

 Net working capital=Cash+ Inventory+ Receivables−Payables

 After−tax Cash flow ¿ Asset Sale=Sale Price −( Tax Rate ×Capital Gain )

 Capital Gain=Sale Price−Book value

 Book value=Purchase Price− Accumulated Depreciation

Accounts payable
 Accounts payable days=
Average Daily Cost of Goods Sold (¿ purchases if given)

Inventory
 Inventory Days=
Average Daily Cost of Goods Sold

Accounts Receivable
 Accounts Receivable Days=
Average Daily Sales

 Operating cycle=Inventory days+ Accounts receivable days

 Cash conversion cycle=Operating cycle− Account payable days

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Week 8 – Risk and Return

¿t +1 + Pt +1−Pt ¿t +1 Pt +1−Pt
 Rt +1= = + =Dividend yield +Capital Gain Yield
Pt Pt Pt
1
 Ŕ= ( R1 + R2 +…+ R T )
T
1 2 2 2
 Var ( R )=
T −1
( [
R 1− Ŕ ) + ( R 2− Ŕ ) +…+ ( RT − Ŕ ) ]
2 2 2
[
 Var ( Ri )=∑ [ Pr ( Ri ) ¿ ( R1− Ŕ ) + ( R2− Ŕ ) + …+ ( RT − Ŕ ) ]¿ ]
SD ( Ri ) ×Corr ( Ri , R Mkt )
 β i=
SD ( R Mkt )
Value of Investment i
 ω i=
Total Value of Portfolio
 E [ R P ] =ω 1 E [ R1 ] +ω2 E [ R2 ] + …+ω n E [ Rn ]
2 2 2 2
 Var ( RP )=ω 1 SD ( R 1 ) + ω2 SD ( R2 ) +2 ω1 ω2 Corr ( R 1 , R2 ) SD ( R1 ) SD ( R 2)
2 2
 σ ( R P ) = ω21 SD ( R1 ) +ω22 SD ( R2 ) +2 ω 1 ω 2 Corr ( R1 , R2 ) SD ( R 1) SD ( R 2 )
√
 E ( Ri ) =r f + β i ( E [ R Mkt ] −r f )

 BP =ω1 β 1+ ω2 β2 +…+ ωn β n

Week 9 – The Cost of Capital

¿ pfd
 Cost of preferred stock capital =
P pfd
¿1
 Cost of equity= +g
PE

 r wacc =r E E %+r pfd P %+r D ( 1−T C ) D %

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Week 10 – Capital Structure
 V L=V U + PV ( Interest Tax Shield )
 V L=D+ E
 Interest Tax Shield=Corporate Tax Rate × Interest Payments
 PV ( Interest Tax Shield )=PV ( T C × Future Interest Payments )

 PV ( Interest Tax Shield of Permenant Debt )=T C × D

D
 r E=r U + ( r −r )
E U D
D
 r E=r U + ( r −r ) ( 1−T C )
E U D
E D
 r wacc =r E +r D ( 1−T C )
E+ D E+ D
 V L=V U + PV ( Interest Tax Shield )−PV ( Financial Distress Costs )
Market value of equity
 Number of shares outstanding=
Stock price
Market Value of Equity
 Price per share=
Shares Outstanding

Week 11: Payout policy

 Enterprise value = PV (Future FCF)
 Pcum =Current Dividend + PV ( Future dividends )
 Pex=PV ( Future dividends )

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