Formulas

unrecovered cost at the beginning of the last year payback period = full years until recovery H--;—----

cash flow during the last year

PV of future cash flows NPV

CF0 CF0

WACC = (wd)[kd (1 - t)] + (wps)(kps) + (wce)(kcc) after-tax cost of debt = kd (1 - t) cost of preferred stock = kps = Dps / P cost of common equity:

kce = bond yield + risk premium unlevered asset beta: project beta:

Passet -

cost of common equity with a country risk premium:

where:

CRP = country risk premium

CRP = sovereign yield spread annualized standard deviation of equity index of developing country annualized standard deviation of the developing country sovereign bond market in terms of the developed market currency where:

sovereign yield spread = difference between yields of government bonds in the developing country and Treasury bonds of similar maturities

. . . amount of capital at which the component's cost of capital changes break point =-;-;-;-s—

weight of the component in the capital structure current assets current ratio = ■

quick ratio =

receivables turnover =

current liabilities cash + short-term marketable securities + receivables current liabilities credit sales number of days of receivables =

average receivables

365 average receivables inventory turnover =

number of days of inventory = 7

receivables turnover average day's credit sales cost of goods sold average inventory

365 average inventory inventory turnover average day's COGS

. . purchases payables turnover ratio =-

average trade payables

, r . r , . 365 average payables number or days or payables = ■ — —

payables turnover ratio average day's purchases operating cycle = average days of inventory + average days of receivables cash conversion = cycle

average days ^ average days average days of receivablesj [ of inventory J of payables face value — price face value discount-basis yield = money market yield = bond equivalent yield =

face value — price face value , face value — price

days 360

price face value — price days price

= holding period yield x

days days to maturity

= holding period yield x

days^ 365

cost of trade credit =

% discount

1 - % discount days past discount where:

days past discount = the number of days after the end of the discount period expected rate of return from a probability model:

variance of returns from a probability model: variance = a^ = ^^Pj [Rj — E(R)J

i=l n covariance from a probability model: Cov1>2 = E{Pi[Ri,i ~~E(Rl)|[Ri,2 — E(R2

sample covariance from historical data: Cov12 = Cov

"1,2 ctL x standard deviation for a two-asset portfolio:

CTp=-yJw1CT1 + W2(T2 + 2w1W2CTi(T2Pi,2 or\wlCTl + W2CT2 + 2WjW2CoV1;2

/ \ i[E(RM)-RFRr equation of the CML: E(Rp) = RFR+ CTp^ V MJ J

total risk = systematic risk + unsystematic risk o ^ Covi,mkt

CTmkt capital asset pricing model (CAPM): E(R;) = RFR + (3j[E(Rmkt) - RFR] zero-beta CAPM: E(RSK>ck) = E^ beta portfolio) + pstock [E(RmarkJ - E(Rzero beta portfolJ]

1 - initial margin margin call trigger price = P0

price-weighted index =

1 - maintenance margin sum of stock prices number of stocks in index adjusted for splits market value-weighted index = ■

(pricetocjay) (number of shares outstanding)

(price(jase year) (number of shares outstanding)

x base year index value Dr one-period stock valuation model: P0 =

infinite period model: Pq

Pn = , and Dn+1 is a dividend that will grow ke -gc at the constant rate of gc forever

earnings multiplier: _0_ _ M

Ej " k-g expected growth rate: g = (retention rate) (ROE)

... _ market price per share trailing P/E =-—-—--

EPS over previous 12 months

. .. market price per share leading P/E = ■ — - - -

forecast EPS over next 12 months

_ , . market value of equity market price per share

book value of equity book value per share where :

book value of equity = common shareholders' equity

= (total assets — total liabilities) - preferred stock

_,,„ . market value of equity market price per share

total sales sales per share

„,. market value of equity market price per share

cash flow cash flow per share earnings plus noncash charges = net income + depreciation + amortization adjusted CFO = CFO +[(net cash interest outflow) x (1 — tax rate)]

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