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Formulas All Chapters Corporate Finance
Formulas All Chapters Corporate Finance
Chapter 2
Chapter 3
Expected return of a risky investment = Expected gain at end of year / Initial cost
NPV = PV(Benefits) - PV (Costs)
NPV = PV(All projects cash flow)
NPV (Buy security) = PV (All cash flows paid by the security) - Price (Security)
NPV (Sell security) = Price (Security) - PV (All cash flows paid by the security)
Price(Security) = PV (All cash flows paid by the security)
r_s = rf + (risk premium for investment s)
Return = Gain at End of Year / Initial Costs
Chapter 4
Chapter 5
(1+EAR) = (1+(ARP/k))^k
(1+EAR) = e^ARP
ARP = ln(1+EAR)
Equivalent n-Period Discount Rate = ((1+r)^n) -1
Growth in Purchasing Power = (1+r) / (1+i)
Interest Rate (compounding period) = ARP / (k_periods/year)
PV = C_n / ( 1+r_n)^n
r (real) = (r-i) / (1+i)
Chapter 6
CPN = (Coupon Rate * Face Value) / Number of Coupon Payments per Year
P = FV / ((1+YTM)^n)
P = CPN * (1/y) * (1-(1/(1+y)^n)) + (FV/(1+y)^n)
P (coupon bond) = (CPN / 1 + YTM_1) + (CPN /( 1 + YTM_2)^2) + … + ((CPN+FV)/(1+YTM_n)^n)
r_n = YTM
YTM = ((FV/P)^(1/n))-1
YTM = (FV/P) - 1
Chapter 8
After-Tax Cash Flow from Asset Sale = Sale Price - (t * Gain on Sale)
Book Value = Purchase Price - Accumulated Depreciation
Free cash flow = (Revenues - Costs - Depreciation) * (1-t) + Depreciation - CapEx - ∆NWC
Free cash flow = (Revenues - Costs * (1-t) - CapEx - ∆NWC + t * Depreciation
Gain on sales = Sale Price - Book Value
Income Tax = EBIT * t
Net working capital = Current assets - Current liabilities
Net working capital = Cash + Inventory + Receivables - Payables
PV(FCF) = FCF / (1+r)^t
PV(FCF) = FCF * (1/(1+r)^t)
Unlevered Net Income = EBIT * (1-t)
Unlevered Net Income = (Revenues - Costs - Depreciation) * (1-t)
Chapter 9
Chapter 10
E(R) = sum(Pr.*R)
1 + R_annual = (1+R_q1) * (1+R_q2) * (1+R_q3) * (1+R_q4)
Cov(Ri,Rj) = E((Ri-E(Ri)*(Rj-E(Rj))
Cov(Ri,Rj) = (1/(t-1)) * sum(Ri-Ri_average) * (Rj-Rj_average)
E (Rp) = E (sum(xi*Ri))
Market Risk Premium = E(R_market) - rf
r_i (cost of capital) = rf + β * (E(R_market) - rf)
R_p (weighted average) = (x_1*R_1) + (x_2*R_2) + … + (x_n*R_n)
R_t+1 = ((Div_t+1 + P_t+1) / P_t) - 1
R(average) = (1/t) * (R_1+R_2+ … +R_t)
SD(average) = SD (Individual Risk) / (number_of_observation^0,5)
SD(R) = Var(R)^0,5
SD(Rp) arbitrary weights = sum( x * (SD/Ri) * corr(Ri, Rp) )
Sharpe ratio = (E(Rp)-rf)/SD(Rp)
Var(R) = E((R-E(R))^2)
Var(R) realized returns = (1/(t-1)) * sum( R_t - R_average)^2
Var(Rp) large portfolio = (1/n) * average_variance
Var(Rp) two stock = x1^2*Var(R1) + x2^2*Var(R2) + 2*x1*x2*Cov(R1,R2)
x_i (portfolio weights) = Value of investment i / total value of portfolio
βi^p = (SD(Ri)*corr(Ri,Rp))/SD(Rp)
Chapter 12
Chapter 14
Chapter 15
Cash flow to investors with leverage = Cash flow to invester with leverage + interest tax shield
Interest tax shield = Corporate tax rate * interest payments
Market value of debt = PV (future interest payments)
PV (Interest Tax Shield) = (t*interest)/rf
PV (Interest tax shield) = t * Future Interest payments
PV (Interest Tax Shield)_perpetual = D * t
r* (effective tax advantage of debt) = ((1-t_i)-(1-t_c)*(1-t_e))/(1-t_i)
T_ex* = 1-((1-t_e)/(1-t_i))
V_L = V_U + PV(Interest Tax Shield)
V_L = V_U + (r * D)
Chapter 16
V_L (agency) = V_U + PV(Interest Tax Shield) - PV(Financial Distress Costs) - PV(Agency Costs of Debt) + PV(Agency Benefit
V_L (optimal) = V_U + PV(Interest tax shield) - PV(Financial Distress Costs)
Chapter 17
Div = 100*rf*(1-t)
Div*(1-t) = (P_cum - P_ex)*(1-t_g)
P_cum = P_ex + div_0 * ((1-t_d)/(1-t_g))
P_retain = (Div*(1-t_d))/(rf*(1-t_i))
t_d* (effective dividend t) = (t_d-t_g)/(1-t_g)
t_retain = 1-(((1-t_c)*(1-t_g))/(1-t_i))
Chapter 18
Chapter 19