Formula Sheet 395 PDF

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Description

EAR=�1 +

฀฀฀฀฀฀ ฀฀ � - 1, ฀ ฀

where m is the frequency of compounding

Present value of a Perpetuity =

฀฀1

฀฀

Present value of a growing Perpetuity =฀฀−฀฀1

฀฀

฀฀1

Present value of an Annuity =

1

Stock price under zero growth =

฀฀฀฀฀฀1

Present value of a growing Annuity =

฀฀฀฀฀฀

1 Stock price under constant growth, ฀฀0 ฀฀−฀฀ r= = 

฀ ฀

Growth rate, g = retention ratio × Return on retained earnings

1

PEmultiple = ฀฀ +

฀฀0 =

฀฀฀฀฀฀ ฀ ฀

฀฀฀฀฀฀1 + ฀฀0

g

+ NPVGO

Average Accounting Return =฀฀฀฀฀฀฀฀฀฀฀฀฀฀ ฀฀฀฀฀฀฀฀ ฀฀฀฀฀฀฀฀฀฀ ฀฀฀฀ ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀

฀฀฀฀ ฀฀฀฀ ฀฀฀฀฀฀ℎ ฀฀฀฀฀฀฀฀฀฀ ฀฀฀฀฀฀฀฀฀฀ ฀฀ℎ฀฀ ฀฀฀฀฀฀฀฀฀฀฀฀฀฀ ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ ฀฀฀฀฀฀฀฀฀฀฀฀฀฀ ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀

PV of CCA tax shield = d = CCA rate,

(1+฀฀)฀฀

฀฀฀฀฀฀฀฀฀฀฀฀฀฀ ฀฀฀฀฀฀ ฀฀฀฀฀฀฀฀฀฀฀฀

฀฀฀฀฀฀฀฀฀฀ ฀฀฀฀฀฀

Profitability Index =

฀฀1

×�1 −(1+฀฀)฀ ฀ � ฀฀−฀฀

×�1 −(1+฀฀)฀฀ � ฀฀

฀฀×฀฀×฀฀฀฀ ฀฀+฀฀

×

1 1+0 .5฀฀ ฀฀×d×Tc - ฀฀+฀฀ × (1+฀฀)฀฀ 1+฀฀

where C = Total Capital cost of the asset,

Tc = Tax Rate, K = discount rate, S = Salvage value of the asset, n = Asset life in years

Accounting break-even quantity = (fixed cost + depreciation)/(Price – Variable Cost per unit) PV break-even = [EAC + Fixed costx(1-Tc) – depreciation tax shield] / (Price –Variable cost)x(1-Tc)

Abnormal Return using the Market Model: AR = R – (α+βRM)

CAPM: E(R) = Rf + β[E(RM) - Rf]

Beta, β = ฀฀

Covariance between stock returns and market returns ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ ฀฀฀฀ ฀฀฀฀฀฀฀฀฀฀฀฀ ฀฀฀฀฀฀฀฀฀฀฀฀฀฀ ฀฀

Weighted Average Cost of Capital, WACC= ฀฀+฀฀×(1-TC)×rB + ฀฀+฀฀×rS

MM I – without Taxes

฀฀

VL = VU

MM II – without Taxes rS = r0 + ×(r0-rB) ฀฀

where rS = return on levered equity, r0 = return on unlevered equity, rB = cost of debt B is value of debt and S is value of levered equity

MM I – with Taxes VL = VU + TCB

MM II – with Taxes

฀฀

rS = r0 + ฀฀ ×(1-TC)×(r0-rB)

where Tc = Tax rate

The Miller Model

] × ฀฀

(1−฀฀฀฀ )×(1−฀฀฀ ฀ ) 1−฀฀฀ ฀

VL = VU + [1-

TS = personal tax rate on equity income, TB = personal tax rate on bond income, TC = corporate tax rate

APV = NPV + NPVF No taxes and riskless debt: βASSET =

฀฀฀฀฀฀฀฀฀฀฀฀ × ฀฀Equity ฀฀฀฀฀฀฀฀฀฀

฀฀฀฀฀฀฀฀฀฀฀฀

฀฀฀฀฀฀฀฀

No taxes and risky debt: βASSET = ฀฀฀฀฀฀฀฀฀฀ × ฀฀Debt +฀฀฀฀฀฀฀฀฀฀ × ฀฀Equity

With taxes and riskless debt: βEquity =�1 +

฀฀฀฀฀฀฀฀ ฀฀฀฀฀฀฀฀฀฀฀฀

× (1 − ฀฀c)� × ฀฀Unleveredfirm

฀฀

With taxes and risky debt: βEquity = ฀฀Unleveredfirm+ ฀฀ ×(1-TC)×( ฀฀ Unleveredfirm – ฀฀ Debt)

Lintner model: Div1-Div0=s(tEPS1-Div0) where s is the speed of adjustment and t is the target ratio Value of a right during rights-on period, Ro = (M0 – S)/(N+1), where M0 is common share price during the rights-on period, S is the subscription price, N is the number of rights required to buy one new share. Ex-rights price of share, ME = M0 – R0...