# Corporate Finance

**Topics:**Time value of money, Compound interest, Net present value

**Pages:**2 (261 words)

**Published:**February 14, 2013

PV (simple without compounding) = FV/1+r

FV (simple without compounding) = PV (1+r)

PV (compounding) = FV / (1+r)n

FV (compounding) = PV (1+r)n

PV (for monthly, daily or bi-annually basis) = FV / (1+r/m)n*m FV (for monthly, daily or bi-annually basis) = PV(1+r/m)n*m

To find interest rate: FV = PV (1+r(?))n (FV and PV are given) APR (Annual Present Rate) = r * Total days in a year/given days In Excel: =RATE(n,pmt,PV)

EAR (Effective Annual Rate) OR EAY (Effective Annual Yield): EAR/EAY = [1+r/m]m – 1 (m = no. of periods)

In Excel: =EFFECT(r,n)

Continuous Compounding (to find FV) = Co * er*t

Co = initial investment

e = 2.718 (constant)

r = APR (rate of interest)

t = No. of years (periods)

Continuous Compounding (to find PV) = Co * 1/er*t

PERPETUITY

PV = C/r (C = Cash inflow)

PV of Growing Perpetuity = PV = C/r-g (r = initial rate, g = growth rate) * Initial rate is always greater than growth rate.

Perpetuity Interest Rate

Perpetuity Interest Rate

Annuity

PVA (Present value of annuity) = C[1/r – 1/r(1+r)t ]

PV Of Growing Annuity = C[(1+r)t -1/r]

FVA (Future value of annuity) = PMT/r-g[1- (1+g)n/(1+r)n]

NET PRESENT VALUE

NPV = - Cost (PV) + Benefit (PV)

* ‘-‘sign shows outflow of cash while ‘+’ sign shows inflow of cash.

Investment is profitable, if-----------------------Cost (PV) Benefit (PV) Investment is not profitable, if-------------------Cost (PV) Benefit (PV)

Please join StudyMode to read the full document