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Original Title: Corporate Finance Formulas

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Corporate Finance Formulas

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N

u

Time Value of

m Continuous

Money Formula Annual Compounding Compounded (m) Times per Year

b Compounding

For:

e

r

e

nm

Future Value of a ⎛ i ⎞

1

Lump Sum. ( FVIFi,n ) F V = P V ( 1 + i )n FV = PV ⎜1 + ⎟ FV = PV( )in

⎝ m⎠

e

- nm

Present Value of a -n ⎛ i ⎞ -in

2

Lump Sum. ( PVIFi,n ) PV = FV ( 1 + i ) PV = FV ⎜1 + ⎟ PV = FV( )

⎝ m⎠

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

FVIFAi,n ) ⎣ i ⎦ ⎣ i/m ⎦

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

Due

Present Value of an ⎡1 - ( 1 + i )- n ⎤ ⎡1 - ( 1 + (i / m) )- nm ⎤

5 Ordinary Annuity. ( PVA = PMT ⎢ ⎥ PVA = PMT ⎢ ⎥

PVIFAi,n ) ⎣ i ⎦ ⎣ i/m ⎦

Present Value

6 PV Annuity Due = PVA*(1+ i ) PV Annuity Due = PVA*(1+ ieffective )

Annuity Due

PMT PMT

7

Present Value of a

PVperpetuity = PVperpetuity =

Perpetuity. i [(1 + i )1/ m − 1]

Continuous growing

8 PV=PMT /(i-g)

e

perpetuity

EAR = -1

m

Effective Annual Rate ⎛ i ⎞ i

9

given the APR. EAR = APR EAR = ⎜ 1 + ⎟ - 1

⎝ m⎠

11 Rate of return

12 Current yield

14 Expected return

15 Dividend Yield

16

Model

19 Return with Constant Growth

Dividend

20 Growth rate g = ROE X plowback ratio

21 Return on Equity

22

Opportunity

23 P/E ratio P/E = P0/ EPS

26 Percentage return

27 Variance σ2

28 Standard deviation σ

30

Equity

35 Beta for one asset i : βi

36 General portfolio β

37

Equity

38 CAPM model r = rf + β (rm – rf ) where rm is the market return and rf is the risk free rate

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

m = the number of compounding periods per year EAR = the Effective Annual 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 = continuous growth rate DIV=dividend

EPS= earns per share P0= current price

NPV= net present value R = return

Rf risk free return ρ12 correlation between asset 1 and 2

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