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Corporate Finance Formulas
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Corporate Finance formula

N
u
Time Value of
m Continuous
Money Formula  An nu al Com po un di ng Com po un ded (m) Tim es p er Year
b Compounding
For:
e
r
  nm
Future Value of a   n ⎛  i ⎞   in
1
Lum p Sum. ( FVIFi,n ) F V =  P V ( 1 + i )   FV = PV ⎜1 + ⎟ FV = PV( )  
⎝  m ⎠
  - nm
Present Value of a -n ⎛  i ⎞ - in
2
Lum p Sum. ( PVIFi,n ) PV =  FV ( 1 + i )   PV  =  FV ⎜1 + ⎟   PV =  FV( )
⎝  m ⎠

Future Value of an ⎡ (1+ i ) -1 ⎤

n
⎡ (1 + (i /  m) ) − 1⎤ nm

3 Ordinary Annuity ( FVA = PMT  ⎢    ⎥ FVA = PMT  ⎢ ⎥ 

FVIFA i,n ) ⎣ i ⎦ ⎣ i/m ⎦

Future Value Annui ty

4 FV Annuity Due = FVA*(1+ i ) FV Annuity Due = FVA*(1+ i effective )
Due

Present Value of an ⎡1 - ( 1 + i )- n ⎤ ⎡1  - ( 1 + (i / m) )- nm
⎤
5 Ordinary Annuity. ( PVA = PMT  ⎢ ⎥  PVA = PMT  ⎢ ⎥ 
PVIFA i,n ) ⎣ i ⎦ ⎣ i / m ⎦

Present Value
6 PV Annuity Due = PVA*(1+ i ) PV Annuity Due = PVA*(1+ i effective )
 An nu ity Due
Present Value of a PMT  PMT 
7 PV perpetuity   =   PV perpetuity   =  
Perpetuity. i [(1 + i )1/ m − 1]
Continuous growing
8
perpetuity PV=PMT /(i-g)
  m

9
Effective Annual Rate
EAR = APR  
⎛ 
EAR = ⎜ 1  +
i ⎞
⎟ - 1 
EAR =  i
-1 
given the APR.
⎝  m ⎠

10 Bond price PV = PV (coupons) + PV (face value)

11 Rate of return

12 Current yield

13 Real and nomi nal rate of return

14 Expected return

 
 

15 Dividend Yield

Constant Growth Dividend Discoun t

16
Model

17 Dividend Discounted Model

18 Equivalent annual cos t (EAC)

Estimating Expected Rates o f

19 Return w ith Constant Growth
Dividend

20 Growth rate g = ROE X plowback ratio

21 Return on Equity

Present Value of Growth

22
Opportunity

23 P/E rati o P/E = P0/ EPS

24 NPV PV – (required investment)

25 NPV(A+B) NPV (A+B) = NPV (A) + NPV (B)

26 Percentage return

27 Variance σ2 

28 Standard deviatio n σ 

29 General Cost of capital

Cost of capital with only Debt and

30
Equity

31 After-tax Cost of Capital: WACC

32 Covariance of asset 1 and asset 2

33 Two assets portfo lio variance

34 N assets portfol io variance

 
 

35 Beta for one asset i : βi

36 General portfolio β 

Portfolio β with on ly Debt and

37
Equity

38 CAPM mo del r = r f + β (r m – r f  ) where r m  is the market return and r f  is the risk free rate  

39 Risk premium ( r - r f )  r - r f  = β (r m – r f  ) where r m  is the market return and r f  is the risk free rate  

40 Expected return on preferred stock

41 Arbitrage Pricing Theory Return = α + b1(rfactor1) + b2(rfactor2) + b3(r factor3) + …+ noise

42 Fama-French thr ee-factor mod el r- rf  =bmarket(rmarket factor )+bsize(rsize factor )+ b book-to-market(r  book-to-market factor )

i = the nominal or Annual Percentage Rate  n = the number of periods  
m = the number of compou nding p eriods per year   EAR = the Effective Annu al Rate 
ln  = the natural logarithm, the logarithm to the base e  e = the base of the natural logarithm ≈ 2.71828 
PMT = the periodic payment or cash flow Perpetuity = an infinite annuity
g = continu ous growth rate DIV=dividend
EPS= earns per share P0= cur rent pric e
NPV= net present value R = return

= mean of x  Rm market portfo lio return

Rf risk free return  ρ12 correlation  between asset 1 and 2

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