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    Ross Formula - Card Sheet

    Uploaded by

    kazadirati
    The document provides 18 formulas across various topics related to finance and valuation including: 1) Present value and net present value formulas for calculating the current value of future cash flows. 2) Formulas for valuing perpetuities, annuities, growing perpetuities, and growing annuities. 3) Formulas for measuring risk of individual assets and portfolios including variance, standard deviation, covariance, correlation, and beta. 4) The capital asset pricing model and k-factor model for calculating expected returns. 5) Formulas for incorporating leverage into cost of equity and valuing firms under corporate taxes. 6) The weighted average cost of capital and equity beta formulas

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    © All Rights Reserved
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    Ross Formula - Card Sheet

    Uploaded by

    kazadirati
    35 views3 pages
    The document provides 18 formulas across various topics related to finance and valuation including: 1) Present value and net present value formulas for calculating the current value of future cash flows. 2) Formulas for valuing perpetuities, annuities, growing perpetuities, and growing annuities. 3) Formulas for measuring risk of individual assets and portfolios including variance, standard deviation, covariance, correlation, and beta. 4) The capital asset pricing model and k-factor model for calculating expected returns. 5) Formulas for incorporating leverage into cost of equity and valuing firms under corporate taxes. 6) The weighted average cost of capital and equity beta formulas

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    Ross Formula_Card sheet

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    The document provides 18 formulas across various topics related to finance and valuation including: 1) Present value and net present value formulas for calculating the current value of future cash flows. 2) Formulas for valuing perpetuities, annuities, growing perpetuities, and growing annuities. 3) Formulas for measuring risk of individual assets and portfolios including variance, standard deviation, covariance, correlation, and beta. 4) The capital asset pricing model and k-factor model for calculating expected returns. 5) Formulas for incorporating leverage into cost of equity and valuing firms under corporate taxes. 6) The weighted average cost of capital and equity beta formulas

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    35 views3 pages

    Ross Formula - Card Sheet

    Uploaded by

    kazadirati
    The document provides 18 formulas across various topics related to finance and valuation including: 1) Present value and net present value formulas for calculating the current value of future cash flows. 2) Formulas for valuing perpetuities, annuities, growing perpetuities, and growing annuities. 3) Formulas for measuring risk of individual assets and portfolios including variance, standard deviation, covariance, correlation, and beta. 4) The capital asset pricing model and k-factor model for calculating expected returns. 5) Formulas for incorporating leverage into cost of equity and valuing firms under corporate taxes. 6) The weighted average cost of capital and equity beta formulas

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    © All Rights Reserved
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    Some Useful Formulas

    1 Present Value
    The discounted value of T future cash flows
    T
    C1 C2 CT Ct
    PV  
    1  r (1  r ) 2
        
    (1  r )T t 1 (1  r )t

    2 Net Present Value


    Present value minus initial costs
    NPV = PV  Cost
    C0 =  Cost
    T
    Ct
    NPV  C0  
    t 1 (1  r )t

    3 Perpetuity
    The value of C received each year, forever
    C
    PV 
    r

    4 Annuity
    The value of C received each year for T years
    C
    PV = [1  1 (1  r )t ]
    r

    5 Growing Perpetuity
    The value of a perpetuity that grows at rate g, where the first payment is C
    C
    PV 
    rg

    6 Growing Annuity
    The value of a T-period annuity that grows at the rate g, where the first payment is C
     1 1 1  g  
    T
    PV  C     
     r  g r  g  1  r  
     
    7 Measures of Risk for Individual Assets

    Var (RA) =  2A = Expected value of ( RA  RA ) 2

    SD (RA) = A = Var ( RA )

    Cov (RA, RB) = AB = Expected value of [( RA  R ) A ) ( RB  RB )]

    Corr(RA, RB) = AB = Cov (RARB)/AB

    8 Expected Return on a Portfolio of Two Assets


    RP  X A RA  X B RB

    9 Variance of a Portfolio of Two Assets

     P  X A2  2A  2 X A X B   AB  X B2  2B

    10 Beta of a Security
    Cov( RA , RM )
    A 
     2 ( RM )

    11 Capital Asset Pricing Model


    RA  RF   A  ( RM  RF )

    12 k-Factor Model
    Ri = Ri + i1F1 + i2F2 +  + ikFk + i

    13 Leverage and the Cost of Equity


    Before tax:

    rs  ro 
    B
    ro  rB 
    S
    After tax:
    B
    rs    (1  TC )(  rB )
    S

    14 Value of the Firm under Corporate Taxes


    VL = VU + TCB
    15 Weighted Average Cost of Capital
     S   B 
     rs   rB 1  TC 
    S  B S  B

    16 Equity Beta
    Equity
    No-tax case: Unleveredfirm   Equity
    Debt  Equity
    Equity
    Corporate tax case: Unleveredfirm   Equity
    Equity  1  TC Debt

    17 Black-Scholes Model
    C = SN(d1)  Eert N(d2)

    where d1 = [1n (S/E) + (r + 1


    2
    2
    )t]/  2t

    d 2  d1   2 t

    18 Sustainable Growth
    P  (1  d )  (1  L)
    Growth 
    T  [ P  (1  d )  (1  L)]

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