ACC501 Final term

Formulas by AC

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Bond value = C x [1 - 1/ (1 + r) t]/r + F/ (1 + r) t

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Fisher Effect: 1 + R = (1 + r) x (1 + h) → R ≈ r + h

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(𝐷1 + 𝑃1 )
Po =
(1+𝑅)

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𝐷
Po =
𝑅
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P0 = D0(1+g) / (R-g) = D1/ (R-g)

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PV = C1 / (R-g) = C0 (1+g) / (R-g)

R = D1/P0 + g
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P0 = D1 / (1+R)1 + D2 / (1+R)2 + D3 / (1+R)3 + D4 / (1+R)4 + ...

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Dt = D0 x (1 + g)t
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P0 = D1 / (R - g)
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P0 = (D1 + P1) / (1 + R)
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Cumulative Voting = [1/(N+1) % of stocks + 1]

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PV = C × {1 - 1 / (1 + r)t} / r
NPV = – Initial Investment + PV of Cash Flows
 NPV > 0 = Accept

NPV < 0 = Reject

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Project Cash Flow = Project operating cash flow – Project change in net working capital –

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Project capital spending

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Operating Cash flows = Earnings before interest and taxes + Depreciation – Taxes

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OCF = (Sales – Costs) x (1 – T) + Dep. X T

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Total cash flow = Operating cash flow – change in NWC – Capital spending

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Cash Flow = cash inflow – cash outflow

0
Dividend Yield = Dividend / beginning price = D1 / P0

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Capital Gains Yield = (ending price – beginning price) / beginning price = (P1 – P0) / P0
lta
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Total Return = R = D1 / P0 + g
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Total Return = Dividend Yield + Capital Gain Yield

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Total Percentage return = dividend yield + capital gains yield

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Percentage Return = Dividend Yield + Capital Gains Yield

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AAR = Some Measure of Average Accounting Profit / Some Measures of Average Accounting
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Value
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AAR = Average Net Income / Average Book Value

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Risk Premium = Expected Rate of Return – Risk free Rate

U

Risk Premium (U) = E(RU) – Rf

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Risk Premium (L) = E(RL) – Rf

R = E(R) + U
 R = E(R) + m + ε

Total risk = Systematic risk + Unsystematic risk

Average Return = R = (X1 + X2 + X3 + X4) / n

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Cost of preferred stock = RP = D/ P0

100% = E/V + D/V → These percentages are called capital structure weights

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TC = corporate tax rate, Cost of debt = RD x (1 – TC).

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M&M Proposition 1

VL = VU + TC × D

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M&M Proposition 2

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RE = RA + (RA – RD) x (D/E) lta
PV of interest tax shield = TC × D

NWC + Fixed assets = Long term debt + Equity

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Cash = Long-term debt+ Equity+ Current liabilities– Current assets other than cash– Fixed assets
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NWC = (Cash + other current assets)– Current liabilities

Cash Cycle = Operating cycle – Accounts payable period

ic

Operating Cycle = Inventory period + Accounts receivable period

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de

Inventory Turnover = Cost of Goods Sold/ Average Inventory

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Receivable Turnover = Credit Sales / Average A/C Receivable

A

Receivable Period = 365 / Receivable turnover

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Operating Cycle = Inventory Period + Receivable Period

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Payable Turnover = Cost of Goods Sold/ Average Payables

 Payable Period = 365 / Payable turnover

Cash cycle = Operating cycle – Payable period

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Total Assets Turnover = Sales/Total assets

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Opening balance of cash = Ending cash balance - Net cash inflow + total cash disbursement

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Ending Balance of Cash = Op. balance + Net cash inflow – total cash disbursement

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Amount Need to Borrow = Minimum Cash Balance – Ending Balance

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Net float = Disbursement float + Collection float

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EOQ = √2 x annual sales x ordering cost per order / carrying cost per unit

0
Total carrying cost = Average Inventory x carrying cost per unit

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Total carrying cost = (EOQ / 2) x carrying cost per unit
lta
Total Ordering cost = Fixed cost per order x Number of orders in a year
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Total Ordering cost = Fixed cost per order x (Annual Sales requirement / EOQ)
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Co

Inventory Period = 365 days/ Inventory Turnover

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Float = Firm’s available balance – Firm’s book balance

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Disbursement Float = Firm’s available balance – Firm’s book balance

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Total carrying costs = Avg. inventory × carrying costs per unit

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Total restocking costs = Fixed costs per order × Number of orders

A

Total costs = carrying costs + restocking costs

EOQ = (2T x F / CC)1/2

U

IRR = Lower discount rate + Difference between the two discount rates × (NPV at lower
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discounted rate / Absolute difference between the NPVs of the two discount rates)
 Profitability Index (PI) = Present value of future cash flows / Initial investment

Operating cash flows = EBIT + Depreciation – Taxes

EBIT = Gross Profit - Fixed Cost - Depreciation

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Total cash flow = Operating CF – change in NWC – Capital Spending

Variance = Sum of Squared Deviations / (n – 1)

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Standard Deviation = √ Variance [Square root of Variance]

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RP = (WA x RA) + (WB x RB)

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WACC = WE x RE + WD x RD (1 – T)

WACC = WE x RE + WD x RD

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WACCA = E/V x RE + D/V x RD x (1 – TC)

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Total Value of the Firm = Total Equity + Total Debt

Weight of Equity = WE
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Weight of Debt = WD = 1 – WE
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Var(R) = ((R1 - R)^2 + ... + (RT - R)^2) / (T-1)

Actual Return - Average Return = Deviation from the Mean

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(Deviation from the Mean)2 = Squared Deviation

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Average Return = R = (X1 + X2 + X3 + X4) / n

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Expected return = probabilities * given return => E(R) = P * R

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R - E(R) = Variance
A

Coefficient of variation, CV = σ / E(R)

U

RP = (WA x RA) + (WB x RB)

V

Total risk = Systematic risk + Unsystematic risk

Depreciation for n year = Purchase price * MACRS %

Book value = Purchase price - Depreciation

100% = E/V + D/V

These percentages are called capital structure weights
 Value of debt and equity, V is: V=E+D

After-tax Interest Bill = Tax deduction - Total Interest Bill Total Value of the

Firm = Total Equity + Total Debt

PV of interest tax shield = (TC × D × RD)/RD = TC × D

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Payable Period= 365 days/ Payable Turnover

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Inventory Period = 365 days/ Inventory Turnover

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Receivable Period = 365 / Receivable turnover

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