INCITE COMMERCE STUDIES CA INTERMEDIATE

FM QUICK REFERENCER Impact of corporate Dividend Tax (CDT)/

Dividends Distribution Tax (DDT):

CHAPTER 1 - COST OF CAPITAL DPS(

1
)
1-DDT rate
Ke =
MPS
COST OF DEBT (Kd)
Where, DPS = Amount of Equity Dividends
(A) Cost of Irredeemable/perpetual Debt: - per share
I(1-t)
Kd = MPS = market Price per Equity Share
NP
Where, I = Amount of Annual Interest 2. Earnings Yield Model/ Earning Price
t = Corporate Income tax Rate Model
NP = Net proceeds = Issue price (-) Flotation EPS
Ke =
cost MPS
Where, EPS = Earnings per Equity Share
(B) Cost of Redeemable Debt: -
I(1-t)+(RV-NP) 3. Dividend Price Ratio plus Growth
n Method/ Dividend Growth Model
Kd = D1
NP+RV
2
Ke = +g
P0
Where, RV = Redeemable Value
n = Numbers of years to maturity
Where D1 = Next Expected Dividends
= D0 (1+g)
COST OF PREFERENCE SHARES (KP)
Or = E (1-b)
(A) Cost of Irredeemable/ Perpetual
g=b x r
Preference shares:
D
Kp = D0 = Dividends just paid/Dividends paid at
NP
Where, D = Amount of Annual Preference the beginning of the year
Dividends E = Expected Earnings for Current year
b = Retention ratio or 100 – Dividends
Impact of corporate Dividend Tax (CDT)/ Payout Ratio
Dividends Distribution Tax (DDT): P0 = Market price of Equity Shares at
1 beginning of year
D (1-DDT rate) g = Growth Rate of the Company
Kp = r = return on Equity
NP
(B) Cost of Redeemable preference Shares: Impact of Corporate Dividend Tax
RV - NP (CDT)/Dividends Distribution Tax (DDT):
D( n )
1
Kp = D1(1-DDT rate)+g
NP + RV
2 Ke =
P0
Impact of corporate Dividend Tax (CDT)/ 4. Earnings Growth Approach:
Dividends Distribution Tax (DDT):
EPS
1 RV - NP Ke = +g
D (1-DDT rate) + ( n ) P0
Kp = Note:- While computing ke, if floatation cost
NP + RV
2 is given then “ Net proceeds (NP) in the
Cost of Equity (Ke) denominator instead of MPS.
1. Dividend yield Model/Dividend Price
Model: 5. Realised Yield Approach:
DPS D +P −P
Ke = Ke (Realised Yield for 1 year) = 1 P 1 0
MPS 0

FM QUICK REFERENCER 1
 INCITE COMMERCE STUDIES CA INTERMEDIATE

Where, P1 = Market price at the end of (A) Intrinsic Value of Irredeemable

year 1 Bond/Debenture:
Ke (Realised Yield for a number of years) = Amount of Annual Interest Income
Discount Rate at which amount invested in Intrinsic Value =
Required Rate of Return
the shares by the shareholders equals to the (B) Intrinsic Value of Redeemable
Present Value of Inflows received by the Bond/Debenture:
investors (i.e., dividends & the actual MPS at Intrinsic = PV of Future interest + PV of
the time of sale). Redeemable value

6. Capital Asset Pricing Model (CAPM): INTRINSIC VALUE OF PREFERENCE

Ke = Rf +  [R(m) - Rf] (A) Intrinsic Value of
Rf = Risk free Rate of Interest Perpetual/Irredeemable Preference Shares:
 = Beta Coefficient or Market Sensitivity Intrinsic Value =
R(m) = Expected Return of Market Annual Preference Dividend
R(m)-Rf = Market Risk Premium Receivable in perpetuity
Calculation of Beta of a Security: Required Rate of Return
= (B) Intrinsic Value of Redeemable
 security × Correlation security & market Preference Shares:
Intrinsic Value = P.V of Preference
 market
Dividends Receivable till Maturity + Present
Value of Maturity Value
COST OF RETAINED EARNINGS (Kre)
Use same model for computing Kre as used INTRINSIC VALUE OF EQUITY SHARES
for computing Ke. Note that while (A) Dividends receivable annually in
computing Kre, only MPS shall be taken as perpetuity:
a denominator. DPS
Intrinsic Value/Po = Ke
Adjustment for Personal Income-Tax, (B) Dividends growing annually at a
Brokerage, Commission etc. in perpetual growth rate:
computation of Kre: D1
Intrinsic Value/Po =
Kre=Ke (1 - tp) (1 - B) Ke−g
Where, Ke = Required Return of Equity (C) Dividends growing abnormally for
Shareholders some years & then normalising growth
Tp = Personal Tax of Shareholders in perpetuity:
B = Brokerage Rate Intrinsic Value/P0= P.V. of Dividends
receivable during Abnormal Growth Period
Adjustment for CDT/DDT &computation P.V. of Intrinsic Value of Shares at the end of
of Kre: Abnormal Growth Period
Kre=Ke (1-B) (1 - DDT rate)
ECONOMIC VALUE ADDED (EVA)
WEIGHTED AVERAGE COST OF CAPITAL EVA = NOPAT - Capital Charge
(WACC) OR OVERALL COST OF CAPITAL Or
(Ko) = (ROI - Ko) (Capital Invested)
Ko = (Kd x Wd) + (Kp x Wp) + (Ke x We) + NOPAT = Net Operating Profits after Tax
(Kre x Wre) Note: Book Value or Market = EBIT (1-t)
Value Weights may be used; however, Capital Charge = Ko x Capital Invested or
Market Value Weights are preferred. Net Assets
Ko = Overall or Weighted Average Cost of
CURRENT YIELD Capital
Current Yield = ROI = After Tax Return on Capital invested
Next Annual Interest Income
x 100 PRESENT VALUE OF EVA
Current Price or Value of Bond/Debenture
Present Value of Economic Value Added =
INTRINSIC VALUE OF A BOND/ Economic Value Added (EVA)
DEBENTURE
Ko

FM QUICK REFERENCER 2
 INCITE COMMERCE STUDIES CA INTERMEDIATE

FINANCIAL BEP
CHAPTER 2 – LEVERAGES Financial BEP = Interest Amount on Long
Preference Dividends
term Debts + 1−Income Tax rate
DEGREE OF OPERATING LEVERAGE
(DOL) OPERATING BEP
contribution % ∆ EBIT Operating BEP (in units) =
DOL = EBIT
= % ∆ Sales Operating fixed cost
Contribution per unit
DEGREE OF FINANCIAL LEVERAGE (DFL)
EBIT % ∆ EPS Operating fixed cost
DFL = Pref. Div = % ∆ EBIT
Operating BEP (in `) = P
EBT− Ratio
(1−t) V

Contribution
DEGREE OF COMBINED LEVERAGE Where, P/V Ratio = × 100
Sales
(DCL) / TOTAL LEVERAGE
DCL = [DOL x DFL] OVERALL BEP
Contribution % ∆ EPS Overall BEP (in units) =
= Pref. Div = Operating fixed cost+Financial Fixed Cost
EBT- % ∆ Sales Contribution per unit
(1 - t)

Overall BEP (in `) =

IMPACT OF FINANCIAL LEVERAGE ON Operating fixed costs + Financial Fixed Costs
SHAREHOLDERS’ WEALTH P
Ratio
(I) Using ROI – ROE Analysis framework: V

EBIT
ROI = Capital Employed × 100 Where, Financial Fixed Cost =
Interest on long Term Debts +
D Preference Dividends
ROE = ROI (1 - t) + (ROI - I) (1- t) + 1−Income tax Rate
E
P
{ROI(1-t) - PD} E
CHAPTER 3 – CAPITAL STRUCTURE
Where,
ROI = Return on Investment
EBIT = Earnings before Interest & Tax or INDIFFERENCE POINT
Net Operating Profits
Capital Employed = Long term Debt + (x − I)(1 − t) − PD (x − I)(1 − t)
Shareholders' funds =
N1 N2
ROE = Return on Equity Where, x = Indifference Point EBIT
D = Debt amount in capital structure I = Interest amount on long term Debts
E = Equity Shareholders' Funds in capital t = Income Tax Rate
structure N1 = No. of Equity Shares in Alternative -1
I = Interest Rate N2 = No. of Equity Shares in Alternative -2
t = Corporate Income Tax Rate PD = Preference Dividends amount
PD= Preference Dividends Rate
P= Preference Share Capital FINANCIAL BREAK - EVEN POINT
Financial Break Even Point Level of EBIT
(II) Using ROA – ROE Analysis Framework: = Interest on long term debts +
- Preference dividends
NOPAT (1−t)
ROA = Operating Assets × 100
UNCOMMITTED EARNINGS PER SHARE
D
ROE = ROA + (ROA - Kd) UEPS
E
=
Uncommitted Earnings available for Equity Shareholders
Where, NOPAT = EBIT (1-t) Number of Equity Shares
Operating Assets = Total Assets invested in UEAE
the business OR = n
Kd = Interest rate (1-t)

FM QUICK REFERENCER 3
 INCITE COMMERCE STUDIES CA INTERMEDIATE

Where, UEAE = EAE - Statutory transfer to KEL =

(EBIT−I)
Specific Reserves, Such as Debenture VL
Redemption Reserve (DRR)
TRADITIONAL APPROACH
COMMON EQUATION FOR THEORIES VF increases with an increase in leverage but
I EBIT−I upto a certain limit only. Beyond this limit,
VF = VD + VE = Kd + Ke an increase in leverage will increase its Ko
& hence the VF will decline. A Capital
EBIT−I structure is said to be optimum at that level
OR VF = Ko
of D/E Ratio where Ko is the least.
Where, VF = Value of firm
VD = Value of Debt MM I (1958) (WITHOUT TAXATION)
VE = Value of Equity 1) VF is Independent of level of leverages &
I = Amount of Interest is determined by capitalising Net
Operating Profits with Ko.
NET INCOME (NI) APPROACH
There is a relationship between capital VL = VU
EBIT
structure & VF. The higher the debt-equity VF = Ko
ratio/leverage, the better it is. At the highest 2) KeL rises with the rise in leverage & is the
possible leverage, Ko will be the minimum sum of Keu & Risk Premium on account
& VF will be the maximum. of increase in leverage which sets off
EAE EBIT completely the benefits of introduction of
Vu = VEu = Keu = Keu
less costly debt funds.
D
Where, EAE = Earnings Available for Equity KEL = Keu + (Keu - kd) x
E
Shareholders 3) Required rate of return /cut off rate for
Vu = Value of Unlevered Firm investment purposes is the overall
VEU = Value of Equity of Unlevered capitalisation rate (Ko) which is
Firm independent of the level of leverage.
Keu = Required Rate of Return to KOL = KOU
Equity, Shareholders of Unlevered Firm
VL = VD + VEL MM II (1963) (WITH CORPORATE
TAXATION)
VEL = EAE
KEL
=
(EBIT−I)
KEL 1) VF rises with the rise in leverage & is
EBIT
KOL = V determined by capitalising NOPAT with
L KO.
Where, o VL > VU
VL = Value of Levered Firm EBIT (1−t)
KOL = Overall Cost of Capital of Levered o VF =
k0
Firm o VL = VU + PV of interest Tax
VEL = Value of Equity of Levered Firm Shield
KeL = Required Rate of Return of Equity, o VL = VU + (Debt x t)
Shareholders of Levered Firm 2) Ke of a Levered Firm (KeL) rises due to the
increase in financial risk but at a lower
NET OPERATING INCOME (NOI) rate due to the feature of corporate
APPROACH taxation which is saved on account of
There is no relationship between Capital debt.
D
Structure & VF. All capital structures are KEL = (Keu – Kd) x E (1-t)
optimal. Since, Ko & EBIT are constant, 3) The required rate of return/cut off rate for
hence VF also remains constant at all levels investment purposes is the overall
of leverage. capitalisation rate (Ko) which is no longer
independent of the level of leverage &
KOL = KOU (KOU = Overall cost of capital of hence Ko decreases on account of tax
unleased firm) savings on debt amount.
VU = VL KOL < Kou
VEL = VF - VD

FM QUICK REFERENCER 4
 INCITE COMMERCE STUDIES CA INTERMEDIATE

MM II WITH CORPORATE TAXES AND NPV =

−CF0
+
CF1
+
CF2
+ …….. +
PERSONAL TAXES (1977) (1−k)0 (1−k)1 (1−k)2
CF𝑛
(1−Tc )(1−Ts )
VL = VU + D (1 − { }) (1+k)𝑛
(1−Td )
Where, Where, CF0 = Cash outflows at Time 0, i.e.
Tc = Corporate tax Rate Cost fixed Assets, Working Capitals etc.
Ts = Personal Tax Rate of Shareholders CFn = Cash inflow at the end of year n
Td = Personal Tax Rate of Debt holders n = life of the project
* The personal Tax Rate of shareholders is k = cost of capital used as the Discount
equal to the personal tax rate of debt Rate
holders, then
VL = VU + (D x TC) EVALUATION OF MUTUALLY
EXCLUSIVE PROPOSAL`S HAVING
IMPACT OF CORPORATE INCOME TAX UNEQUAL LIVES
ON NI APPROACH When only cash outflows are known:
PVCO
VL = VD + VE EAPVCO = PVAF of years of benefits
(EBIT− I)(1−t)
VE = 𝑘𝑒𝐿
When both cash outflows & Inflows are
IMPACT OF CORPORATE INCOME TAX known:
NPV
ON NOI APPROACH EANPV =
PVAF of years of benefits
(EBIT− I)(1−t)
VI = 𝑘 /𝑘
𝑒𝑢 𝑜𝑢
Where, INTERNAL RATE OF RETURN
Keu = Equity Capitalisation Rate of an IRR = Discount Rate which makes the NPV
Unlevered Firm of the project under consideration = 0.
Kou = Overall Cost of Capital of an OR PI = 1 or PVCO = PVCI
−CF0 CF1 CF2 CF𝑛
Unlevered Firm 0 = (1+r)0 + (1+r) 1 + (1+r)2 + …….. + (1+r)𝑛
VL = Vu + (VD + t)
Where, CF0 = Cash outflows at Time 0 i.e.,
CHAPTER 4 – CAPITAL BUDGETING Cost of Fixed Assets, Working Capital etc.
CFn = Cash inflows at the end of year m
r = Discount Rate (IRR)
PAYBACK PERIOD n = Life of the project
Initial Investment PROFITABILITY INDEX (PI) METHOD/
Payback period = DESIRABILITY FACTOR/ BENEFIT – COST
Net Annual cash Inflows
(B/C) RATIO TECHNIQUE
Present Value of Cash Inflows (PVCI)
ACCOUNTING RATE OF RETURN (ARR) PI =
Present Value of cash Outflows (PVCO)
Average PAT
ARR = × 100
Initial Investment/Capital Employed NET PRESENT VALUE INDEX (NPVI)
NPV
OR ARR = NPVI =
Average PAT Initial Cash outflows
Average Investment/Capital Employed
× 100
MODIFIED INTERNAL RATE OF RETURN
 PAT over the lifetime of project (MIRR)/ TERMINAL RATE OF RETURN
Average PAT = Project profile All cash flows, apart from the Initial
Average Capital Employed = Investment, are brought to the terminal
Opening Investment + Terminal Value value using an appropriate discount rate (the
2 cost of capital). This results in a single stream
Where, Annual PAT= Annual CFAT – of cash inflow in the terminal year. The
Depreciation discount rate which equates the present
value of the terminal cash inflow to the
NET PRESENT VALUE (NPV) METHOD zeroth year outflow is called MIRR.
NPV = PV of cash Inflows – PV of Cash
Outflows

FM QUICK REFERENCER 5
 INCITE COMMERCE STUDIES CA INTERMEDIATE

CFo= [CF1x (1+k)n-1 + CF2 x (1+k)n-2+ ……..

+ CFn] x
1 CHAPTER 5 –
N1
(1−MIRR)
COMPUTATION OF STANDARD
DEVIATION
Case I: When cash flows are dependent over
σNPV = √∑𝑁 2
𝑖=1(NPVi - Mean NPV) × P𝑖
Or
σNPV
(NPV1 – Mean NPV)2 × Prob1 + ⋯ . +
(NPV2 – Mean NPV)2 × Prob2 + ⋯ +
√ Opening Stock of Finished
(NPVn – Mean NPV)2 × Prob𝑛
Case ii: When the cash flows are
independent from period to period/ F.S
Hillier Model.
 of expected value = ( CI1 x PVf1)2 + ( of
CI2 x PVf2)2
Step 1: Compute S.D. of Cash Inflows of
each year
Step 2: Compute S.D of expected value.
COEFFICIENT OF VARIATION
Coefficient of variation =
Standard deviation of Expected (σ)
Mean or Expected NPV (x̅)
FINANCIAL STATEMENT ANALYSIS
PROFITABILITY RATIOS BASED ON
SALES (INCOME STATEMENT
PROFITABILITY RATIOS)
1. Cost of Goods Sold (COGS) Ratio:
COGS Ratio=
Cost of Goods Sold
× 100
= Net Sales
Where, COGS of a Trader = Opening Stock
+ Net Purchases + Direct Expenses -
Closing Stock COGS of a Manufacturer
Goods+ Factory Cost of Production -
Closing Stock Finished Goods
Net Sales Total Sales - Sales Return
2. Gross Profit (GP) Ratio or Gross
Percentage:
Gross Profit
Gross Profit Ratio = Net Sales
x 100
Where, Gross Profit (GP) = Net Sales -
COGS
Relationship between COGS Ratio & GP
Ratio:
COGS Ratio 100 - GP Ratio
GP Ratio 100-COGS Ratio

COEFFICIENT EQUIVALENT (CE) 3. Expense Ratio:

APPROACH 1) COGS ratio has been discussed
CE Coefficient = above
Certain Cash flows
2) Office & Admin Exp Ratio =
Risky or Expected Cash Flows Office & Admin Exp.
× 100
Net Sales
RISK ADJUSTED DISCOUNT RATE (RADR
APPROACH) 3) S & D Expenses Ratio =
RADR = Rf + p (Ko - Rf) S & D Expenses
× 100
Net Sales
ROLE OF INFLATION IN DCF
EVALUATION 4) Fixed Expenses Ratio =
Fixed Operating Expenses
Nominal Cash Flows = Real Cash Flows (1 Net Sales
× 100
+ Inflation Rate)
Nominal Cash flows 5) Variable Expenses Ratio =
Real Cash Flows = ( 1+Inflation Rate
)
Variable Expenses
Net Sales
× 100
NDR = (1+RDR) x 1(1+ Inflation Rate) – 1
(1+NDR)
RDR = (1+Inflation Rate) -1 4. Profit/Volume (P/V) Ratio /
Contribution / Sales Ratio:
Contribution
P/V Ratio = Sales
× 100
Where, Contribution = Sales – Variable
Cost
OR = Fixed Cost + profit – Loss

FM QUICK REFERENCER 6
 INCITE COMMERCE STUDIES CA INTERMEDIATE

5. Operating Ratio:
Operating Ratio = MARKET TEST OR MARKET STRENGTH
Cost of goods Sold+Other Operating Exp. ANALYSIS OR INVESTOR ANALYSIS
× 100 RATIOS
Net Sales

OR = Cost of Goods Sold ratio + Office & Dividends Yield in Equity Shares
Admin Exp. Ratio + S&D Exp. Ratio. DPS
Dividends Yield Ratio = × 100
MPS
6. Net Operating Profit Ratio: Earning yield Ratio
Net Operating Profit Ratio = EPS
Net Operating Profits or EBIT Earning Yield Ratio = × 100
MPS
× 100
Net Sales
Dividends Payout Ratio
PROFITABILITY RATIOS BASED ON DPS
Dividends Payout Ratio = × 100
CAPITAL & INVESTMENT EPS
OR = 100 – Retention Ratio
Return om capital Employed or Return on
Investment. Retention Ratio:
EPS−DPS
Return on capital Employed = Retention Ratio = × 100
EBIT EPS
× 100
Capital Employed
OR = 100 – Dividends payout Ratio
Return on Equity (ROE)
Pricing-Earning Ratio or P/E Ratio:
a) Return on Total Shareholder’s Funds MPS
EAT P/E Ratio =
Ratio = × 100 EPS
Shareholder′ s fund 1
OR =
Earning Yield Ratio
b) Return on Equity Shareholder’s
Funds Ratio = Market Value to Book Value per share:
EAE MPS
× 100 Market Value to Book Value Ratio =
Equity Shareholder′ s fund BVPS

Return on Operating Assets: LONG TERM SOLVENCY RATIOS

Return on Operating Assets = Debt -Equity Ratio:
NOPAT Debt
× 100 Debt – Equity Ratio (D\E Ratio) =
Operating Assets Equity
OR =
Capital Turnover Ratio: Long Term Debt Funds
Net sales Shareholders or Proprietors Funds or Net worth
Capital Turnover Ratio =
Capital Employed
Where, Long term Debt Funds = Long Term
COVERAGE RATIO Loans Whether secured or unsecured). E.g.,
Interest coverage Ratio: Debentures, Bonds, Loans from Financial
Interest Coverage Ratio = Institutions.
EBIT
Interest on Long Term Debts Gearing or Capital Gearing Ratio:
Capital Gearing Ratio =
Pref.Share capital+Long term Debts
Debt Charges Coverage Ratio:
Equity Shareholders Funds
𝑫𝒆𝒃𝒕 𝒔𝒆𝒓𝒗𝒊𝒄𝒆𝒔 𝑪𝒐𝒗𝒆𝒓𝒂𝒈𝒆 𝑹𝒂𝒕𝒊𝒐 =
EAT+Interest+Dep.on
Long term Debt
Interest on Long term Debt
𝑂𝑡ℎ𝑒𝑟 𝑁𝑜𝑛 − 𝑐𝑎𝑠ℎ 𝐸𝑥𝑝𝑒𝑑𝑖𝑡𝑢𝑟𝑒𝑠 𝑙𝑖𝑘𝑒 𝑎𝑚𝑜𝑟𝑡𝑖𝑠𝑎𝑡𝑖𝑜𝑛
(+) 𝐼𝑛𝑠𝑡𝑎𝑙𝑙𝑚𝑒𝑛𝑡 𝑜𝑓 𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙

FM QUICK REFERENCER 7
 INCITE COMMERCE STUDIES CA INTERMEDIATE

BUY BACK OF SHARES

CHAPTER 6 – DIVIDEND DECISION Expected post Buy Back Shares EPS =
𝐸𝑎𝑟𝑛𝑖𝑛𝑔 𝐴𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑓𝑜𝑟 𝐸𝑞𝑢𝑖𝑡𝑦 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠
𝑁𝑜 𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦 𝑠ℎ𝑎𝑟𝑒𝑠 𝑏𝑒𝑓𝑜𝑟𝑒 𝐵𝑢𝑦 𝐵𝑎𝑐𝑘−
𝑁𝑜 𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦 𝑠ℎ𝑎𝑟𝑒𝑠 𝑏𝑜𝑢𝑔ℎ𝑡 𝑏𝑎𝑐𝑘
WALTER'S MODEL
Post buy back MPS = Expected post buy
D+(r\ke) (E−D)
Po = back EPS x Expected post Buy Back P/E Ratio
Ke
EPS 1
Ke = Cost of Equity = =P Total Amount required for Buy Back = No of
MPS RATIO shares to be bought back x Buy Back price
E
Optimal Dividend Policy per shares
r > Ke, 100% retention
r <ke, 100% dividends payout STOCK SPLIT & REVERSE SPLIT
r = Ke, Pay & retain in any proportion (1) Stock Split:
I. Revised par value after stock split =
LINTNER’S MODEL Par value before stock split
(Ex D/P Ratio x Adj Rate) + Do (1 - Adj Rate) Stock split Ratio
II. Revised No of equity shares x Stock
Traditional model (graham & dodd) split Ratio
P = m (D+E/3)P= m (D+ (D+R)/3) = m (4D/3) III. Revised MPS after stock split =
MPS before stock split
+ m (R/3)
Stock Split Ratio

MM MODEL/IRRELEVANT THEORY
(2) Reverse Split/Consideration:
1. P1 = Po (1+ Ke) – D
D1 +P1 I. Revised par value after reverse
2. Po = 1+ke Par value before reverse split
split=
3. Additional No. of Equity Shares to be Reverse split Ratio
I −(E−D) II. Revised No of equity shares After
issued at the end of year 1 = 1 𝑂𝑙𝑑 𝑁𝑜 𝑜𝑓 𝑒𝑞𝑢𝑖𝑡𝑦 𝑆ℎ𝑎𝑟𝑒𝑠
P1 reverse Split = Reverse split Ratio
4. Market Capitalisation of Equity Shares =
(No of equity x MPS Shares) III. Revised MPS after reverse split =
MPS before reverse split
Reverse Split Ratio
PVGO
D E
PVGO = ( 1 )− ( )
ke−g ke

DIVIDEND DISCOUNT MODEL (DDM)

D1 D2 D3
Intrinsic Value (1+ke) 1 + (1+ke)2 + (1+ke)3 +
SF
𝑛
…….. + (1+ke)𝑛

a) Zero Growth Rate DDM:

D
Stock’s Intrinsic Value = (ke)
b) Constant Growth rate DDM
1 D
Stock’s Intrinsic Value = (ke−g)
c) Variable Growth Rate DDM:
Stock’s Intrinsic Value =PV of Dividends
receivable during abnormal Growth period
+ PV of market price the end of the abnormal
growth of period

Computation of DDT
𝐷𝐷𝑇 𝑅𝑎𝑡𝑒
= Dividends amount x (100−DDT Rate)

FM QUICK REFERENCER 8