Professional Documents
Culture Documents
1) Certificate of deposit
The value of the CD on maturity = Face value x [1 + (Coupon rate x Days to
maturity/365)]
2) Commercial paper
Yield on commercial paper = No. of days in year x (Selling price – Purchase price)
Days held Purchase price
3) Current ratio = CA
#
CL
I
.
Every is
in
* →
revenue $ X
sales
=
.
I
Holding cost = Ch x [(Q/2) + Buffer inventory]
3) Other formula
→ Reorder level = Maximum usage x Maximum lead time
I
-
-
[
Minimum inventory level = Preorder level – ( Average usage x Average lead
time)
Q = √2CS
i
Where,
Q – total amount to be raised to provide for S
C – cost incurred selling the securities
- co
=
costofsellyse.es
.mg?feri↳ get
.
$
S – annual cash received
i – interest forgone for not investing the cash →
cost of holding .
*it is used to calculate the optimum cash balances in the same form as the EOQ formula
for inventory management
2) Miller-Orr model
buy =
outflow
Return point = Lower + (1 x Spread) daily sell = inflow -
3 ✓
3
Spread = 3 x √(3 x Transaction x Variance)
4 Interest → daily
Variance = Standard deviation2
If the cash balances reach an upper limit (maximum level) the firm needs to buy
I
sufficient securities to return the cash balance to a normal level (return point).
When the cash balance reaches a lower limit (minimum level), the firm needs to sell
securities to bring back the balance to the return point.
see C g
deep ..pn
Average annual profit from investment x 100
Initial investment CF -
→
Average annual profit from investment x 100
Average investment
- Average investment = Initial outlay + Scrap value
2
*profit is after depreciation but before interest and tax (PBIT)
→ CF
CHAPTER 8: INVESTMENT APPRAISAL USING DCF METHODS
① = profit
1) Present value (PV) = FV X (1+r)-n
puhtedep =
Tj
-
3) Perpetuity = 1
r afb a)Noah
-
- .
NPVa - NPVb =
-
year
Yeo Total of every
"
CF
Year
o p e
'
( - 8 3
8 d
c-
1) Fisher formula
(1+i) = (1+r) (1+h)
i – nominal interest rate
r – real interest rate
h – inflation rate
2) NPV layout
Year 0 1 2 3 4
Sales X X X
Costs (X) (X) (X)
Operating cash flow X X X
Taxation (X) (X) (X)
Capital expenditure (X)
Scrap value X
I-7AT#
-
Workings
eg purchase
:
1. Tax relief
31
on
- Reducing balance
December
Year TAD Tax relief (%) Timing
I
2010 .
(%)
Itqnthaauaihnin
0 Cost Based on the
year you pay tax
Last year
tie year of *cannot claim CA in year of
purchase
.
disposal because we claim
BA/BC
41=20 "
J.io#en.gReHIFt
- Straight line
TAD = Costs
Years
2. Working capital
Year
1
I
WC Requirement
WC Incremental
a
(a)
Timing
0
2 b a-b 1
WC at the
Assume = recover Prepared by: FM-G (July - December 2019)
end of
.
Prob
PV of CF xxx x xxx x
1
xxx x
xxx x
PV of CF xxx x xxx x
2
xxx x
xxx x
PV of CF xxx x xxx x
3
xxx x
xxx x
1.00
Sum of PV xx
Initial outlay -xx
ENPV xx
→ sensitivity
2) Sensitivity analysis (uncertainty)
- using
sees
risk
Selling price as
.
Operating cost
Net present value of project %
Present value of operating cost
Capital expenditure
Net present value of project %
Present value of capital expenditure
=
Sales volume
Net present value of project %
Present value of contributions
Taunt
Cost of capital
IRR – Discount factor %
Discount factor
current
Prepared by: FM-G (July - December 2019)
Aini Deraman / FM / JD’19
replacement
find vhichyeqpel.net
fused
-
*
wards longer
2) The split between interest and capital repayment
Example:
3 (existing no. of @$4.00 (current MV of $12.00
shares) share)
1 (new no. of shares) @$3.20 (right issue price) $3.20
4 $15.20
TERP = $15.20
4
= $3.80
Irredeemable debt
Kd = i (1-t)
P0 method
-
Kd = a + NPVa
iedomah
Redeemable debt – YTM method
(b-a)
NPVa - NPVb
Example:
Year Cash flows DF (a) PV DF (b) PV
0 Market value
1 - 10 i (1-t)
10 Redemption value
NPV a NPV b
Redemption value
If convertible debt, redemption value is higher of conversion value or
normal redemption value
i. Conversion value – convert the debt to shares
ii. Normal redemption value – redeem the debt at par value or at
premium
1) Financial gearing
debt
⑤ eoraedinaefershaTRE
Prior charge capital =
ago:÷÷:-p
4) P/E ratio = Market price per share
Earnings per share
1) Degeared – need to know proxy company’s business risk, Ba by removing their financial
risk
financialrisk of
Ba = Be x ( Ve
Ve + Vf + Vd(1-t)
) =
Ba
= remove
proxyco
-
ask of
include financial
2) Regeared – to find new Be of our company
Be = Ba x (Ve + Vf + Vd(1-t)) Ba
-
win new
Ve =
our company
get Be -
-
= same
Basic DVM =
Valjean (shpahnece =
FINANCIAL MANAGEMENT’s FORMULAE
pv of future dividend that
#
2) Asset valuation bases = Tangible NCA + CA – CL
*intangible asset should be excluded unless they have a market value (patents,
-
dividend
PV of future
- -
copyrights)
asset
-
q -
X intangible
unless hare
&
3) Dividend valuation model
→ P0 = D0 (1+g)
reliable MV a
minority
mu
reliable
goingidaennfd goodwill no
x
.
cannot
-
Ke – g ←
= not tangible I
growth selloff .
in be
4) Earnings until perpetuity
_y
,
P/E ratio
Yount Yo!
gdahemt.TT#eEarmgisY'ooent
'
'
constant in f
I £ routs )
y
ongoing;F¥j
'
Cash flows after interest payments and tax – discount factor at cost of equity (Ke)
-
Cash flows before interest payments and tax – discount factor at WACC
4 tax
Kew#c
} tax before interest
after interest
Cf =
DF a
value of the
company ,
Npv =
1) Forward market
Example:
Spot exchange rate = 1.9615+/- 0.0003 pesos to the dollar
3 months fwd exchange rate = 1.9605+/-0.0007 pesos to the dollar
Receipt
“Receipt 1m peso sales, received in 3 months using forward rate”
Sales value = 1 million pesos
‘Sell peso buy dollar’ rate 1.9612
Payment
“Paying 1m peso invoice, received in 3 months using forward rate”
Payment value = 1 million pesos
‘Buy peso sell dollar’ rate 1.9598
2) Money market
Receipt
i. Borrow in foreign currency
X= Receipt amount
(1 + Borrowing rate in FC)
Payment
i. Deposit in foreign currency
X = Payment amount
(1 + Deposit rate in FC)
rm→#
¥ ¥ sell RM
i
to
call option =
right buy $ @ rate
=
interest option
" "
insurance
=
interest @ 2%
peut =
right to pay
lust @ n°1
fat right to receive in
= .
coHa
cost
I reduce
=
1-
FINANCIAL MANAGEMENT’s FORMULAE