Present value =

future value after t periods (1 + r) t

(3.1)

PV of perpetuity =

C cash payment = r interest rate

(3.2)

Present value of t-year annuity = C

1 1 r r(1 + r)t

] ]

(3.3)

Future value of annuity of $1 per year = present value of annuity of $1 per year (1 + r)t 1 1 r r(1 + r)t (1 + r)t 1 = r = 1 + nominal interest rate 1 + inflation rate

(1 + r)t

(3.4)

1 + real interest rate =

(3.5)

PV = PV (coupons) + PV (face value) = (coupon annuity factor) + (face value

discount factor)

(4.1)

Rate of return =

coupon income + price change investment

(4.2)

Expected return

DIV1 + P1 P0 P0

(5.1)

P0 =

DIV1 DIV2 DIVH + PH + +...+ 1+r (1 + r)2 (1 + r)H

(5.2)

Stock price = PV (all future dividends per share)

(5.3)

r=

DIV1 +g P0 = dividend yield + growth rate

(5.4)

P0 =

DIV1 DIV2 DIVH PH + +...+ + 1+r (1 + r)2 (1 + r)H (1 + r)H

PV of dividends from Year 1 to horizon PV of stock price at horizon

(5.5)

NPV = PV required investment

(6.1)

Book rate of return =

book income book assets present value of costs annuity factor

(6.2)

Equivalent annual cost =

(6.3)

Profitability index =

net present value initial investment

(6.4)

Incremental cash flow cash flow = cash flow with project without project

(7.1)

Total cash flow = cash flow from investment in plant and equipment + cash flow from investment in working capital + cash flow from operations

(7.2)

Depreciation tax shield = depreciation

tax rate

(7.3)

Taxable income = revenues expenses CCA

(7.4)

CCA tax shield = CCA

tax rate

(7.5)

fixed costs including depreciation Break-even level of revenues = additional profit from each additional dollar of sales

(8.1)

DOL =

percentage change in profits percentage change in sales

(8.2)

DOL = 1 +

fixed costs profits

(8.3)

Percentage return =

capital gain + dividend initial share price

(9.1)

Dividend yield =

dividend initial share price

(9.2)

Percentage capital gain =

capital gain initial share price

(9.3)

1 + real rate of return =

1 + nominal rate of return 1 + inflation rate

(9.4)

Variance =

probability-weighted average of squared deviations around the expected return

(9.5)

Standard deviation = square root of variance

(9.6)

Variance = sum of squared deviations/(number of observations 1)

(9.7)

Standard deviation = square root of variance

(9.8)

Portfolio rate fraction of portfolio = of return in first asset + fraction of portfolio in second asset

( (

rate of return on first asset rate of return on second asset

(9.9)

)
(10.1)

Risk premium on any asset = r rf = (rm rf)

Expected return = risk-free rate + risk premium r= rf + (rm rf )

(10.2)

Value of business =

value of portfolio of all the firms (11.1) debt and equity securities (11.2)

Risk of business = risk of portfolio

Rate of return on business = rate of return on portfolio

(11.3)

Investors required return on business investors required return on = (company cost of capital) portfolio

(11.4)

Company cost of capital = weighted average of debt and equity returns

(11.5)

rassets = =

total income value of investment (D rdebt) + (E V requity) =

(11.6)

D V

rdebt +

) (

E V

requity

)
(11.7)

After-tax cost of debt = pretax cost (1 tax rate) = rdebt (1 Tc)

WACC =

[ [

D V

(1 Tc)rdebt +

](

E V

requity

) ) (
E V requity

(11.8)

WACC =

D V

(1 Tc)rdebt +

] (

P V

rpreferred +

(11.9)

rpreferred =

dividend price of preferred

(11.10)

Expected expected debtreturn = return + equity on equity on assets ratio

expected expected return on return on assets debt

(15.1)

PV tax shields =

annual tax shield Tc (rdebt D) = = Tc D rdebt rdebt

(15.2)

WACC = (1 Tc) rdebt

D E + requity D+E D+E

(15.3)

Overall market value if all-equity PV tax PV costs of = + value financed shield financial distress

(15.4)

ROA =

net income + interest sales net income + interest = assets assets sales asset profit turnover margin

(17.1)

ROE =

assets sales net income + interest equity assets sales leverage asset profit ratio turnover margin

net income net income + interest (17.2) debt burden

Required external financing = new investment = (growth rate

addition to retained earnings addition to assets) retained earnings

(18.1)

Internal growth rate =

addition to retained earnings assets

(18.2)

Internal growth rate =

addition to retained earnings assets

(18.2)

Sustainable growth rate = plowback ratio

return on equity

(18.4)

Cash conversion cycle = (inventory period + receivables period) accounts payable period

(19.1)

Inventory period =

average inventory annual cost of goods sold/365

(19.2)

Accounts receivable period =

average accounts receivable annual sales/365

(19.3)

Accounts payable period =

average accounts payable annual cost of goods sold/365

(19.4)

Inventory period =

average inventory annual cost of goods sold/365

(19.5)

Receivables period =

average accounts receivable annual sales/365

(19.6)

Payables period =

average accounts payable annual cost of goods sold/365

(19.7)

Ending accounts receivable =

beginning accounts receivable + sales collections

(19.8)

Economic order quantity =

annual sales cost per order carrying cost

(20.1)

Initial cash balance =

annual cash outflows cost per sale of securities interest rate (20.2)

Effective annual rate = 1 +

discount discounted price

365/extra days credit

(21.1)

Refuse credit: 0 Grant credit: p

PV(REV COST) (1 p)

PV(COST)

(21.2)

Profit to seller = initial futures price ultimate market price

(26.1)

Profit to buyer = ultimate market price initial futures price

(26.2)