Formula Sheet Finance 2 FINAL EXAM

NPV T
FCFt
NPV =  − Initial cos t
t =1 (1 + r )t

Perpetuity Cash Flow

PV0 =
r
Growing perpetuity CF1
PV0 =
r−g

Annuity 1 1 
PV0 = CF   − 
 r r (1 + r ) 
t

Expected return of a value of investment i

portfolio E  RP  =  i xi E  Ri , where xi =
total value of portfolio

Variance and standard

deviation of a stock

CAPM E ( Ri ) = ri = rf + iMkt (E ( RMkt ) − rf )

Beta
SD(Ri )  Corr (Ri ,RMkt ) Cov(Ri ,RMkt )
iMkt  =
SD(RMkt ) Var (RMkt )
Unlevered beta without
E D
taxes  A = U = E + D
E + D E + D
Pre-tax WACC:
E D
rU = rA = pre − tax rwacc = rE + rD
E + D E + D
Levered return on equity
D
rE = rU + (rU − rD )
E
After-tax WACC
E D D
after − tax rwacc = rE + (1 −  c ) rD = rU −  c rD
E + D E + D V
Debt capacity
Dt = d  Vt L
 Put-Call Parity C = S + P − PV ( K ) − PV ( Div)

One-period Binomial
Tree model
Su  + (1 + rf )B = Cu
Sd  + (1 + rf )B = Cd
C − Cd C − Sd 
 = u and B = d
Su − S d 1 + rf

→ C = S + B