Formula Sheet: CFIN 1 Final Exam

NAME:

1. Present Value of Cash flow

CT
PV ( CT ) =
(1+ r)T
2. Future Value of Cash flow

FV (C0 ) = C0 (1+ r )

3. Present value of stream of cash flows

PV C0
4. PV Annuity

PV =

C1
CT

(1 r )
(1 r ) T

c
1
1 T
r
(1 + r)

5. PV (Growing Perpetuity)
c
PV =
r-g
6. CAPM

E(r) = rf + b [E(rm ) - rf ]
7. Project/Enterprise Valuation
T

PV = PV (FCF)t + PV (Terminal ValueT )

t=1
T

= ( PV[EBITt (1 - TC ) + Depreciation t - Capex t - DWCt ])

t=1

+ PV (Terminal ValueT )
10. MM Proposition I

Perfect Markets VL = VU
With taxes
VL = VU + PV (Debt Tax Shields)
More imperfections
VL = VU + PV (Debt Tax Shields) PV (Bankruptcy Costs)
+/- Other Costs/Benefits of Debt
1

11. MM Proposition II:

Cost of Equity

With no taxes

= + ( )

With taxes, fixed %D

= + ( )

With taxes, fixed $D

= +

(1)

( )

WACC

WACC

E
D
RE RD (1 t )
V
V

12. Beta

= + + +
If debt beta is zero
With no taxes

= [1 + ]

With taxes, fixed %D

= [1 + ]

With taxes, fixed $ Debt = [1 +

13. APV

(1)

VL = Vu + PV (Tax Shields) +/ PV(Other Side Effects)

14. MM With Personal Taxes

Effective tax benefit of debt = T* where

T * =1-

(1- Tc )(1- Te )
(1- Ti )

Where

Tc = corporate tax rate

Te = personal tax rate on equity
Ti = personal tax rate on interest income