formula sheet

Topics: Finance, Corporate finance, Stock market Pages: 2 (205 words) Published: November 15, 2014
Formula Sheet for the Corporate Finance Final Examination Paper

1.

r = cost of capital t = year

2. Pure Play approach
bL = bU[1 + (1 – T)(D/E)]
bL = levered beta
bU = unlevered beta
T = tax rate
D/E = debt to equity ratio

3. Firm value

Rs = Cost of equity
G = cash flow growth rate

4.

rRF = the risk-free interest rate
RPM = the expected market risk premium on an average stock = rM – rRF rM = the expected return on the market portfolio
bi = the beta coefficient for the ith security

wd = the % of debt in the capital structure
ws = the % of common equity in the capital structure
rd(1 – T) = the after-tax component cost of debt, where T is the firm’s marginal tax rate. The after-tax cost of debt is used because interest is deductible for tax purposes rs = the component cost of common equity

5. Dividend growth model

P0 = D1 / (r-g)

P0 = current share price
D1 = next period dividend amount
r = required rate of return
g = dividend growth rate

6. Right price

where
n = number of shares held to obtain a right r = number of addition shares offered for a right M = market price before issuing
S = subscription or issue price of the rights issue

Ex-right share price

7. Annual Equivalent Value (Equivalent annual annuity)
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