Formulas

Question 1

What is the general formula for PV?

Answer 1

PV = (CF1 x DF1) + (CF2 x DF2) + … + (CFT x DFT)

Question 2

What is the formula for an annuity cash flow with constant growth?

Answer 2

V0 = CF/(k-g) * (1-((1+g)/(1+k))^T)

Question 3

What is the formula for a perpetuity cash flow?

Answer 3

V0 = CF / (k-g)

Question 4

What is a bond’s duration?

Answer 4

A bonds duration is the PV weighted payment time of CFs

Question 5

What is the formula for FCF?

Answer 5

FCF = EBIT x (1 - T) + Depr - Change in WCR - CAPEX

Question 6

What is the formula for NPV in .a DCF?

Answer 6

NPV = FCF1 / (1 + WACC) + FCF2 / (1 + WACC)^2 + …

Question 7

What is the formula for WACC?

Answer 7

WACC = D/(D+E) * k_B * (1 - t) + E/(D + E) * k_E

Question 8

What is the formula for Equity Risk Premium?

Answer 8

(E[R_M] - R_F) * B

Question 9

What is the formula for the cost of equity?

Answer 9

k_E = R_F + ERP

Question 10

What is the the formula for the capital market line?

Answer 10

E[R_P] = R_F + ((E[R_M] - R_F)/sigma[R_M]) * sigma[R)P]

Question 11

What is the formula for beta?

Answer 11

B = correlation * Sigma[R_i] / Sigma[R_M]

Question 12

What is the MM proposition for firm value?

Answer 12

V_L = V_U + PV[ITS]

Question 13

What is the MM proposition for share price?

Answer 13

P_L = P_U + PV[ITS]/N_U

Question 14

What is the the MM formular for equity value?

Answer 14

E_L = V_L - D = E_U + PV[ITS] + D

Question 15

What is the MM formula for cost of equity?

Answer 15

K_EL = K_EU + (K_EU - K_B)(1 - t)D/E

Question 16

What is the MM formula for Equity Beta?

Answer 16

B_L = B_U x (1 + (1 - t)D/E)

Question 17

What is the MM formula for WACC?

Answer 17

WACC = (D/V)(1 - t)K_B + (E/V)K_E