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Corporate Finance Formulas Sheet Outline

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This is an extract of our Corporate Finance Formulas Sheet document, which we sell as part of our Corporate Finance Outlines collection written by the top tier of University Of Virginia School Of Law students.

The following is a more accessble plain text extract of the PDF sample above, taken from our Corporate Finance Outlines. Due to the challenges of extracting text from PDFs, it will have odd formatting:

FORMULAS - CORPORATE FINANCE Future Value = FV = P * (1 + r)t . . . (P = principle; r = risk free market rate; t = # of periods) Present Value Formulas PV = C1/(1+r)t = DF * C1 . . . (C1 = future cash flow; DF = discount factor) Discount Factor = DF = 1/(1+r)t . . . (r = risk free market rate; t = # of periods) Net PV = NPV = PV - required investment = C0 + [?][i=1 to T] Ci/(1+r)i Present value of what an investment gives you over the market (+ = good investment) C0 = initial investment (normally negative!); required investment = same thing Perpetuity: set cash payment in every year (perpetuity that starts in year zero, begins payments in year 1) PV of Perpetuity = Cash Flow / Market Rate = C / r . . . (see proof on p. 27) (first cash flow at t 1) PV of Delayed Perpetuity = C/(r * (1 + r)t) . . . (i.e. PV of CF discounted for delay) (perpetuity starts in year t, but the first payment comes in year t+1: delayed t years after normal perpetuity) PV of constant growth perpetuity = PV0 = C1 / (r - g) . . . (g = growth rate of the cash flow) PV of constant growth perpetuity at any time = PV t = Ct+1 / (r - g) Annuity: annuity received in year zero, starts payments of C at year 1, and ceases at year t (i.e. t payments) PV of Annuity year 1 to t = (C/r) - (C/r)*(1/(1+r)t) = (C/r)* (1 - (1/(1+r)t)) = perpetuity - delayed perpetuity FV of Annuity year 1 to t = (C/r) * [(1+r)t-1]
Annuity Factor: (1/r) - (1/r)*(1/(1+r)t) Equivalent annual annuity = present value of cash flows / annuity factor Use this to find the cash flow per period (annuity) that has the same present value as the actual cash flow of the project Bonds: purchase in year zero, first payment either at 6 months or 1 year PV of Bond = annuity + deferred maturity value = C/(1+r)1 + C/(1+r)2 + . . . + (maturity value + C)/(1+r)N Normally all Coupons (C) are equal, at C = coupon rate * maturity value If paid semi-annually, half the market rate r for similar bonds, half of coupons C (assuming stated annually), and take periods as 6 months Yield to Maturity = YTM = the market rate for similar bonds (note: this is essentially the return you will get after discount or premium) Duration = [?][t=1 to T] t * PV(Ct)/PV = see back of book for easier formula using yield (t = period; T is maturity time; PV(Ct) = present value of the payment in year t, PV is the current PV) Duration measures how long before the bond price is paid via cash flows Modified Duration = volatility(%) = duration / (1 + YTM) Sensitivity of the bond to the market: percentage change in bond price for a 1 percentage-point change in the yield Stock: With Fixed Rate of Growth: P0 = Div1 / (r - g) (for constant growth of dividends, value at t=0 with div1 paying out at t=1 NOT t=0) In sum, you accumulate in year zero, use dividend in year 1 to calculate Get "r" by CAPM; get "Div1" by ROE*payout ratio ("POR"); get "g" by ROE*PBR Dividend growth rate = g = ROE * plowback ratio (conservative estimate) Payout Ratio: fraction of earnings paid as dividends Plowback Ratio: fraction of earnings retained by firm (POR + PBR = 1) Without Growth (Fixed Dividends) PV(stock) = P0 = [?]PV(expected future dividends) = [?][t = 1 to inf.] Div1 / (1 + r)t . . . (r = expected return) If Only Next Year's Dividends are Known: P0 = (Div1 + P1)/(1+r) P1 = P0 * (1 + r) - Div1

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