N1563 Corporate and International Finance HANDOUT

(1.1) Future value (FV) = Present value (PV)×(1+r) t

where, r is the interest rate; t is the number of periods.

Cash payment (C)

(1.2) PV of perpetuity =
Interest rate (r)

1 1 
(1.3) PV of t-year annuity = C   − t 
 r r (1 + r ) 

FV of annuity of $1 a year = PV of annuity of $1 a year×(1+r) t

(1.4) (1+r) t -1
=
r

(1.5) PV of annuity due = PV of ordinary annuity × (1 + r )

(1.6) FV of annuity due = FV of ordinary annuity × (1 + r )

1 + nominal interest rate

1 + real interest rate =
(1.7) 1 + inflation rate

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

(1.8)
= ( coupon × annuity factor ) + ( face value × discount factor )

coupon income + price change

(1.9) Bond rate of return =
investment

Div1 +P1
(1.10) The intrinsic value of the share, V0 =
1+r

where, P, Div, and r denote stock price, dividend per share, and
required rate of return, respectively.

Div1 Div2 DivH +PH

(1.11) P0 = + + +
(1+r) (1+r)2 (1+r)H

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N1563 Corporate and International Finance HANDOUT

Div1
(1.12) P0 = ( Constant-growth dividend discount model )
r-g

where, g is the growth rate.

Div1
(1.13) r= +g = dividend yield + growth rate
P0

(1.14) g = sustainable growth rate = return on equity × plowback ratio

(1.15) Net Present Value (NPV) = PV – required investment

NPV
(1.16) Profitability index =
Initial investment

present value of costs

(1.17) Equivalent annual annuity =
annuity factor

cash flows from capital investments +

(1.18) Total cash flow = cash flows from changes in working capital +
operating cash flows

Operating cash flow (OCF) =

(1.19) (Revenue – Costs -Taxes); Or, (after-tax profit + depreciation); Or,
( revenue – cash expenses ) x (1-tax rate) + ( tax rate x depreciation )
capital gain + dividend
(1.20) Percentage return =
initial share price

Portfolio rate of return =

(1.21) ( fraction of portfolio in first asset  rate of return on first asset )
+ ( fraction of portfolio in second asset  rate of return on second asset )

Beta of portfolio = ( fraction of portfolio in stock 1 × beta of stock 1)

(1.22)
+ ( fraction of portfolio in stock 2 × beta of stock 2 )

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N1563 Corporate and International Finance HANDOUT

σ 2P =x12σ12 +x 22σ 22 +2(x1x 2ρ12σ1σ 2 )

(1.23) where, x is the weight and σ is the standard deviation of individual
assets; ρ is correlation coefficient between assets. x1 +x 2 =1.

Expected return = risk-free rate + expected risk premium

(1.24)
r = rf +β(rm -rf )

where, rm is the expected market return;  is the beta of the security.

σim
(1.25) βi = ; where σim is covariance with market, σ m2 is variance of market
σm2

D
(1.26) requity = rassets + ( rassets -rdebt )
E

where, D, E, and r denote the debt, equity, and expected return, respectively.

D E
(1.27) WACC = ×(1-Tc )×rdebt + ×requity
V V

where, WACC is the weighted-average cost of capital; Tc is the corporate tax rate, and
V is the total value of the firm (V=D+E).

preprice-issue price
(1.28) Value of a right=
held shares
+1
new shares
FCF1 FCF2 FCFH PVH
PV = + + ... + +
(1.29) (1 + r ) (1 + r )
1 2
(1 + r ) H
(1 + r ) H
Where, FCF free cash flow; PV is the horizon value
Adjusted Present Value = Base Case NPV
(1.30)
+ Sum of PVs of financing side effects ( PV impact )