MBA FMGT Formula Sheet

APPROVED READING
Titman, S, Martin, T, Keown, AJ & Martin, JD 2016, Financial management:
principles and applications, 7th edn, Pearson Australia, Victoria.
Petty, JW, Titman, S, Keown, AJ, Martin, T, & Martin, JD 2012, Financial
management: principles and applications, 6th edn, Pearson Australia, New
South Wales.

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MBA FINANCIAL MANAGMENT

Exam Formula Sheet
Please note: This sheet contains formulas for users of the 7th edition textbook.
Operating profit = Total revenue (Total variable cost-Total fixed cost) = 0
F

Accounting Break-even Point: = PV

Accounting Break-even Sales:
FD

Cash Break-even Point: = PV

Net Working Capital = Current assets- Current liabilities
Operating Cycle = Inventory conversion period + Average collection period
Accounts Payable Deferral Period =

365

Cash Conversion Cycle = Operating cycle Accounts payable deferral period

Inventory Conversion Period =

Inventory Turnover Ratio =

365

Average Collection Period =

/365

Future Value:
FVn = PV(1 + i)n or using PV tables FVn = PV(FVIFi,n)
Present Value:
PV = FVn / (1 + i)n or using PV tables PV = FVn(PVIFi,n)
Future Value of an ordinary annuity:
or using PV tables FVn = PMT (FVIFA i,n)
Present Value of an ordinary annuity:
or using PV tables PV = PMT (PVIFA i,n)
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Formulas for the 7 edition textbook are continued on the next page.

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Formulas for the 7 edition textbook continued.

Present Value of a perpetuity: PV = PMT/i

Bond Value:
or
or using PV tables
Valuation of ordinary shares Constant dividend growth rate model:
VE = D1/ (RE-g) or VE = D0 (1 + g) / (RE -g)
Preference share valuation:
VP =

Annual Dividend (D)

Required rate of return (R)

Expected Rate of Return:

E(r) = Pr(r1) x r1 + Pr(r2) x r2 + + Pr(rn) x rn
Standard Deviation:

Portfolio Expected Rate of Return:

E(rportfolio) = (W1 E(r1)) + (W2 E(r2)) + + (Wn E(rn))
Portfolio Standard Deviation:

CAPM equation:
Expected return on risky asset j = E(rasset j) = rf + asset j ( E(rm) rf )
Net Present Value:
1
2

NPV = CF0 + (1+)

1 + (1+)2 + . + (1+)
Profitability Index:
PI =

1
(1+)1

2
+(1+)
2 + .+(1+)

Internal Rate of Return:

CF0 + (+)
+ (+) + . + (+) =0
Weighted Average Cost of Capital:
WACC = (kD (1-t) WD) + ( kP Wp ) + ( kE WE)

Australian Institute of Business. 18MAR16

MBA FINANCIAL MANAGMENT

Exam Formula Sheet
Please note: This sheet contains formulas for users of the 6th edition textbook.
Break-even point:
Break-even point sales revenue:
The EOQ model:
Total Inventory Costs: CQ / 2 + SO / Q
Future Value: FVn = PV(1 + i)n or using appendix FVn = PV(FVIFi,n)
Present Value: PV = FVn / (1 + i)n or using appendix PV = FVn(PVIFi,n)
Future Value of an ordinary annuity:
or using appendix FVn = PMT (FVIFA i,n)
Present Value of an ordinary annuity:
or using appendix PV = PMT (PVIFA i,n)
Perpetuity: PV = PMT/i
Bond Value:

or

or using appendix
Annual Dividend (D)

Preference share valuation: VP = Required rate of return (R)

Valuation of ordinary shares Single Holding Period: VE = D1/(1+RE) + P1 /(1+RE)
Valuation of ordinary shares Multiple Holding Period:
VE = D1/ (RE-g) or VE = D0 (1 + g) / (RE -g)
The Fisher Effect: 1 + i = (1 + R) (1 + r);

i = R + r + rR

Holding Period Return or Historical Return: Rt = (Pt / Pt-1) 1

Expected Return: R* = P(R1) x R1 + P(R2) x R2 + + P(Rn) x Rn
Average Return:

=1

= (R1+R2+ +Rn)/n

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Formulas for the 6 edition textbook are continued on the next page.

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Formulas for the 6 edition textbook continued.

Standard Deviation:
Security Beta: j = jm x j/m
Portfolio Beta: portfolio = =1(percentage invested in stock j) x ( of stock j)
CAPM: Rj = Rf + j ( Rm Rf )
n
Net Present Value: NPV ACF t IO
t

(1 k )

t 1
n

Profitability Index:

ACF t

(1 k )

PI

t 1

IO
n

Internal Rate of Return: IO

t 1

ACFt
(1 IRR ) t
n

( AP )

Accounting Rate of Return:

t 1

ARR

n
( IO ESV )
2

Market price of debt: P0 I t ( PVIFARd ,n ) $M ( PVIFRd ,n )

n

t
Before-tax cost of debt: NP0 (1 K
t 1

d , BT

M
(1 K d , BT ) n

After-tax cost of debt: K d , AT K d , BT (1 T )

Before-tax cost of preference shares:

K d , BT

D /(1 T )
NP0

D
After-tax cost of preference shares: K d , AT NP
0
Cost of ordinary equity dividend growth model: RE
Before-tax cost of retained earnings: RE , BT

D (1 g )
D1
g 0
g
P0
P0

D0 (1 g ) /(1 T )
g
VE

Cost of retained earnings by CAPM approach: RE R f ( Rm R f )

Before-tax cost of ordinary equity new share issue: K E , BT

D0 (1 g ) /(1 T )
g
NP0

After-tax cost of ordinary equity new share issue K E , AT D0 (1 g ) g

NP0
Australian Institute of Business. 18MAR16