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    Formula Sheet Corporate Finance (COF) : Stockholm Business School

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    Linus Ahlgren
    The document contains formulas and definitions for key concepts in corporate finance including: 1) Present value and future value calculations for cash flows, annuities, and perpetuities. 2) Weighted average cost of capital (WACC), net present value (NPV), internal rate of return (IRR), modified IRR (MIRR) and other valuation metrics. 3) Bond valuation, capital asset pricing model (CAPM), beta, leverage, and cost of equity/debt.

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    © All Rights Reserved
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    Formula Sheet Corporate Finance (COF) : Stockholm Business School

    Uploaded by

    Linus Ahlgren
    148 views6 pages
    The document contains formulas and definitions for key concepts in corporate finance including: 1) Present value and future value calculations for cash flows, annuities, and perpetuities. 2) Weighted average cost of capital (WACC), net present value (NPV), internal rate of return (IRR), modified IRR (MIRR) and other valuation metrics. 3) Bond valuation, capital asset pricing model (CAPM), beta, leverage, and cost of equity/debt.

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    Formula sheet

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    The document contains formulas and definitions for key concepts in corporate finance including: 1) Present value and future value calculations for cash flows, annuities, and perpetuities. 2) Weighted average cost of capital (WACC), net present value (NPV), internal rate of return (IRR), modified IRR (MIRR) and other valuation metrics. 3) Bond valuation, capital asset pricing model (CAPM), beta, leverage, and cost of equity/debt.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    148 views6 pages

    Formula Sheet Corporate Finance (COF) : Stockholm Business School

    Uploaded by

    Linus Ahlgren
    The document contains formulas and definitions for key concepts in corporate finance including: 1) Present value and future value calculations for cash flows, annuities, and perpetuities. 2) Weighted average cost of capital (WACC), net present value (NPV), internal rate of return (IRR), modified IRR (MIRR) and other valuation metrics. 3) Bond valuation, capital asset pricing model (CAPM), beta, leverage, and cost of equity/debt.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 6

    Stockholm Business School

    Formula sheet
    Corporate Finance
    (COF)
    2

    Present Value calculation

    Discount factor Present value of single cash flow

    1 𝐶
    𝐷𝐹 = PV =
    (1 + 𝑟)𝑘 (1 + 𝑟)𝑛

    Present value of an annuity

    1 1
    PV(𝐴𝑛𝑛𝑢𝑖𝑡𝑦) = 𝐶 ∙ ∙ [1 − ]
    𝑟 (1 + 𝑟)𝑁

    Present value of a growing annuity with growth rate g

    1 1+𝑔 𝑁
    PV = 𝐶 ∙ ∙ [1 − ( ) ]
    𝑟−𝑔 1+𝑟

    Present value of a growing perpetuity with growth rate g

    1
    PV = 𝐶 ∙
    𝑟−𝑔

    Constant dividend growth model

    𝐷𝑖𝑣1
    PV (share)0 =
    𝑟𝐸 − 𝑔

    Future Value calculations

    Future value Future value of Annuity

    1
    FV𝑛 = 𝑃𝑉 ∙ (1 + 𝑟)𝑛 FV (𝐴𝑛𝑛𝑢𝑖𝑡𝑦) = 𝐶 ∙ ∙ [(1 + 𝑟)𝑁 − 1]
    𝑟
    3

    Conversion of interest rates

    Nominal and real rates Nominal rate after taxes

    𝒓−𝒊 𝒓 ∙ (𝟏 − 𝝉)
    𝒓𝒓 =
    𝟏+𝒊

    Effective annual rate to effective period rate Effective annual rate to annual percentage rate

    𝒏 𝑨𝑷𝑹 𝒌
    𝟏 + 𝒓 = (𝟏 + 𝒓𝒑𝒆𝒓𝒊𝒐𝒅 ) 𝟏 + 𝑬𝑨𝑹 = (𝟏 + )
    𝒌

    Bonds, MV of debt

    Coupon bonds, debt with interest payments


    1 1 𝐹𝑉
    P = 𝐶𝑃𝑁 [1 − ] +
    𝑦 (1 + 𝑦)𝑁 (1 + 𝑦)𝑁

    CAPM (Capital Asset Pricing Model)

    Security Market Line Beta

    𝜎𝑖,𝑀
    𝐸[𝑅𝑖 ] = 𝑅𝑓 + 𝛽𝑖 (𝐸[𝑅𝑀 ] − 𝑅𝑓 ) 𝛽𝑖 = 2
    𝜎𝑀

    Levered beta vs Unlevered beta

    Levered beta Unlevered beta

    BetaL
    BetaU 
    BetaL  BetaU1  1 - t m 
    D
    1  1 - t m 
    D
    E
    E
    4

    WACC (Weighted Average Cost of Capital)

    𝐸 𝐷
    𝑊𝐴𝐶𝐶 = 𝑟 + 𝑟 (1 − 𝑡𝑎𝑥)
    𝐸+𝐷 𝑒 𝐸+𝐷 𝑑

    Valuation

    Value of Equity Value of Firm

    t=n t =n
    Value of Equity= å
    CF to Equity t CF to Firm t
    Value of Firm = 
    t=1 (1+k e )t t =1 (1 + WACC) t

    Free Cash Flows

    FCFF FCFE

    FCFE = Net Income - Net Capital Expenditure -


    FCFF = EBIT (1- tax rate) - Net Capital
    Change in Net Working Capital + New Debt - Debt
    Expenditures - Change in Net Working Capital
    Repayment.

    FCFF from FCFE


    Net Capital Expenditures

    FCFF = Net Income + Interest (1 -


    tax rate) – Net Capital Expenditures Net Capital Expenditures = Changes in
    - Change in Net Working Capital Capital Expenditures - Depreciation
    5

    Expected Growth

    Expected Growth in EPS Expected Growth Rate in EBIT


    Expected Growth Rate in EBIT =ROC *
    Expected Growth in EPS = ROE * Retention Rate
    Reinvestment Rate

    Interest Coverage Ratio


    EBIT
    Interest Coverage Ratio 
    Interest Expense

    Value Created in Change of WACC


    WACC OLD  WACC NEW
    Value Created  FV Beforethe Change
    WACC NEW - Growth In NEW WACC

    Dividend

    Dividends Yields Dividend Payout Ratio


    Annual Dividends per share Dividends
    Dividend Yield  Dividend Payout Ratio 
    Price per share Earnings
    6

    NPV, IRR, MIRR, Payback Period and Profitability Index

    Net Present Value (NPV) Internal Rate of Return (IRR)

    n n
    CFt CFt
    NPV  - CF0    0  - CF0  
    t 0 (1  r ) (1  IRR ) t
    t
    t 0

    Modified Internal Rate of Return (MIRR)


    Payback Period

    Ter min al Value 1 / n Initial Cash Outlay


    MIRR  ( ) 1 PB 
    Initial Investment Annual Net Cash Flow

    Profitability Index

    n
    CFt
     (1  r ) t
    PI  t 1
    CF0

    Return on Capital (ROC)


    EBIT (1  t )
    Return on Capital (After - tax) 
    Average BV of Total Investment in

    Return on Equity (ROE)

    Net Income
    Return on Equity 
    Average BV of Equity Investment in Pr oject

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