Equation Card

Chapter 2
Analysis of Financial Statements
PVA(DUE)n  PMT {o [ ] }
n

t1
1
_______
(1  r)t (1  r)
Net cash Net  Depreciation and 2.1

{[ ] }
1 _____
1
flow income amortization (1  r)n
_________
 PMT r  (1  r) 4.7
ROA  Net profit margin  Total assets turnover

 Net income
___________
Sales
Sales
 ___________
Total assets
2.2 PVP  PMT __
r
PMT
r []
1  _____ 4.8

ROE  ROA  Equity multiplier

 ___________
Total assets
Total assets
Net income  _______________
Common equity
2.3
1
[
PVCFn  CF1 _______
(1  r)1 ] 1
 . . .  CFn _______
(1  r)n [ ]
n

[(
Profit
ROE  margin  )
Total assets
turnover
 (Equity
multiplier
2.4
)] ( )  o CF [_______
t1 (1  r) ]
1 t t
4.9

Sales Total assets

[
Net income  ___________
 ___________
Sales Total assets
 _______________
Common equity ] ( Stated annual )
Periodic rate  rPER interest rate
 ___________________

Chapter 4
( Number
payments per year )
of interest

Time Value Of Money rSIMPLE

 ______
m 4.10

FVn  PV(1  r)n 4.1

interest periods PER
of years (
Number of  n  Number  Number of interest
payments per year ) ( )
FVAn  PMT[(1  r)n1  (1  r)n2  . . .  (1  r)0]
 nYRS  m 4.11
n1
 PMT o(1  r) t
rSIMPLE
t0 Effective annual rate (EAR)  rEAR  1  ______
m ( )m
 1.0
(1  r)n  1
[
 PMT ___________
r ] 4.2  (1  rPER)m  1.0 4.12

n1
Chapter 5
FVA(DUE)n  PMT o(1  r) (1  r)
t0
t The Cost of Money (Interest Rates)

(1  r)n  1 Yield
r {[
 PMT ___________  (1  r) ] } 4.3
Dollar return Dollar income  Capital gains
 ______________  ___________________________
Beginning value Beginning value
FVCFn  CF1 (1  r)n1  . . .  CFn (1  r)0
Dollar income  (Ending value  Beginning value)
 _____________________________________________ 5.1
Beginning value
n1
 o CF (1  r)
t0
t
t
4.4
Rate of return  r  Risk-free rate  Risk premium 5.2

FVn Rate of return  r  rRF  RP

1
PV  _______
(1  r)n
 FVn _______
(1  r)n [ ] 4.5
 rRF  [DRP  LP  MRP] 5.3
n

PVAn  PMT [o t1

1
_______
(1  r) t ] rTreasury  rRF  MRP  [r*  IP]  MRP 5.4

1  _____
1 (
Interest rate  Interest rate
in Year 1 ) (
R1  R2
in Year 2  ___________
Yield on a  __________________________ )
 PMT r [
(1  r)n
_________
] 4.6 2-year bond 2 2
5.5

Equation Card

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 Equation Card Continued
CF1 CF2 CFn Standard deviation
Value of an asset  _______  _______  . . .  _______
(1  r)1
(1  r)2 (1  r)n _____________________________
n    (r1  r)2 Pr1  . . .  (rn  r)2 Prn
CF
 o _______
(1  r)
t
t 5.6 ____________
n

o
t1
 (ri  r)2Pri 8.2
i1
Chapter 6
__________
Bonds (Debt)Characteristics and Valuation n

Bond Value  Vd  INT

1 ______
1
(1  rd)N
__________
r M
1
________
N [ d ] [ (1  rd) ] 6.1
Estimated   s  o(r  r)
__________
t1
n1
t
2

8.3

r1  r2  rn or t

)[ ]
1  ________
1
( >) 1rd 2N
r  ______________
n  _____
t1
n 8.4
Vd  ____
2 (
INT ________
( rd>2 )
M
 ___________
r 2N
2

(1 d>2)
6.2

Coefficient of variation  CV  _______ 

Risk  __ 8.5
Bond yield  Current(interest)yield  Capital gains yield Return r

INT Vd, End  Vd, Begin Portfolio return  rP

 ______  ______________ 6.3
Vd,Begin Vd, Begin  w1r1  w2r2    wNrN

Chapter 7 N

Stocks (Equity)Characteristics and Valuation  ow r

j1
j j 8.6

D1 D
Stock Value  Vs  P0  ________  . . .  ________ Portfolio beta  P  w11    wNN
(1  rs)1 (1  rs)
N

 o

Dt
________
7.1
 o w j j 8.7
t1
(1  rs)t j1

Risk premium for Stock j  RPj  RPM  j

D0 (1  g)1 __________ D (1  g)
D (1  g)2 . . . ___________
P0  __________  0   0  (rM  rRF)j 8.8
(1  rs) 1
(1  rs) 2 (1  rs)
D0(1  g)  _____
D1 Required return  Risk-free return  Premium for risk
 _________
rs  g rs 2 g
rj  rRF  RPj 8.9
 Value of a constant growth stock 7.2
rj  rRF  (RPM)j

r s 
D1
___  g  rRF  (rM  rRF)j 8.10
P0

Expected rate Expected Expected growth rate

  7.3 Chapter 9
of return dividend yield or capital gains yield
Capital Budgeting Techniques
Economic  EVA
value added CF1 CF2 CFn
NPV  CF0  _______ 1
 _______ 2
 . . .  _______
(1  r) (1  r) (1  r)n
 EBIT(1  T)  [( Average
of funds ) ( capital )]
cost

Invested
7.4 n

o____
CFt
 (1  r) t 9.1
t0
Chapter 8
Risk and Rates of Return CF1 CFn
NPV  CF0  __________  . . .  __________ 0
(1  IRR)1 (1  IRR)n
Expected rate of retrun  r  Pr1r1  . . .  Prnrn
or
n
CF1 CFn
 oPr r 8.1 CF0  __________  . . .  __________ 9.2
i1
i i
(1  IRR)1 (1  IRR)n

Equation Card

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 TV
PV of cash outflows  ____________ rs rrf  RPs  rrf  RPms  rrf  (rm  rrf) s 11.5
(1  MIRR)n
n D
rS  r s  ___1  g 11.6
n o
__________
CIFt(1  r)nt P0
o ____
COF t0
 t
9.3
(1  r)
t0
t (1  MIRR)n D
r e  ____
1 D
 g  _________
1
g 11.7
NP0 P0(1  F)

( )
Number of years just
Payback WACC  wd (rdT)  wps (rps)  ws (rs) 11.8
 before full recovery
period
of initial investment

( )
Maximum amount of lower cost
Amount of the initial

( )
of capital of a given type
investment that is unrecovered Break point  _____________________________ 11.9
Proportion of the type of capital
at the start of the recovery year
 9.4 in the capital structure
Total cash flow generated
during the recovery year
Chapter 12
Capital Structure
Chapter 10
EBIT
Project Cash Flows and Risk Degree of (
______
%
in NOI  ________
 DOL  ___________ EBIT 12.1
)
operating leverage %
in sales
Sales
Incremental (
______
Sales )
^ 
Cash revenuest 
Cash expensest 
Taxest
operating CFt Q(P  V) S  VC

NOIt  (1  T) 
Deprt
DOL  _____________  ___________
Q(P  V)  F S  VC  F
 (
EBITDAt 
Deprt)  (1  T) 
Deprt
 (
EBITDAt)  (1  T)  T(
Deprt) Gross profit
10.1  ___________ 12.2
EBIT

EPS
Chapter 11
Degree of
_____
%
in EPS  ________
 DFL  ____________ EPS ( )
financial leverage %
in EBIT
EBIT
The Cost of Capital (
______
EBIT )
EBIT

( ) ( )( )  _________
After-tax Bondholders 12.3
component  rdT 
Tax EBIT  I
required 
savings
cost of debt rate of return
Degree of
 rd  rd  T %
in sales
 DTL  ___________
total %
in EPS
 rd(1  T) 11.1 leverage
 DOL  DFL
INT
Vd  ___________ INT  M
 . . .  ____________ Gross profit EBIT  I
(1  YTM)1 (1  YTM)N  ___________  _____
EBIT EBIT
 ________ INT  M
INT  . . .  _________ 11.2 Gross proit
(1  rd)1 (1  rd)N  __________
EBIT  I
Q(P  V)
 ________________
Component cost Dps Q(P  V)  F  I
 rps  _________________
of preferred stock P0  Flotaion costs S  VC
 _______________ 12.4
Dps Dps S  VC  F  I
 _________  ____ 11.3
P0(1  F) NP0
EPS1  EPS0  EPS0 (DTL  %
Sales)
Required rate of return  Expected rate of return  EPS0 [1  (DTL  %
Sales)] 12.5
rs  r s

D
rRF  RPs  ___1  g 11.4
P0

Equation Card

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 Equation Card Continued
Chapter 13 Receivables
Receivables
collection  ______________
Distribution of Retained Earnings: Dividends Daily credit sales
period (DSO)
and Stock Repurchases
Receivables
 ___________________
[
Transfer from RE  (Shrs)  % stock P0
dividend ( )] 13.1
(
Annual credit sales
_________________
360 )
360 days
 ___________________
Chapter 14
Working Capital Policy
(
Annual credit sales
_________________
Receivables )
360 days
 ___________________ 14.3
( Account
balance
) (
Amount of
daily activity
 ) (
Average life
of the account ) 14.1 Receivables turnover

Inventory Payables
Inverntory Accounts payable
conversion  ________________________ deferral  ____________________
Cost of goods sold per day Credit purchases per day
period (ICP) period (DPO)
Inventory Accounts payable
 ___________________  ___________________
(
Cost of goods sold
_________________
360 days ) (
Cost of goods sold
_________________
360 )
360 days 360 days
 ___________________  ___________________
(
Cost of goods sold
_________________
Inventory ) (
Cost of goods sold
_________________
Accounts payable )
360 days 360 days
 _________________ 14.2  ________________ 14.4
Inventory turnover Payables turnover

Cash conversion cycle  ICP  DSO  DPO 14.5

Chapter 15
Managing Short-Term Assets

Total inventory costs (TIC)  Total carrying costs  Total ordering costs

 ( Carrying cost
per unit
 ) (
Average units
in inventory
 ) (
Cost per
order )  ( ofNumber
orders )

 (C  PP)  ( Q2 )
__  O  ( QT )
__ 15.1

Economic ordering quantity  EOQ

_________
2OT

 __________
C  PP
15.2

Chapter 16 Annual percentage

 rPER  m  rSIMPLE 16.3
Managing Short-Term Liabilities (Financing) rate (APR)

Percentage cost (
Dollar cost
of borrowing
 rPER  ______________
) 16.1 (
$ reductions from
Usable funds  Principal  principal amount ) 16.4
per period
(
Dollar amount
of usable fund )
Effective annual
rate (EAR)
 rEAR  (1  rPER)m  1.0 16.2
Usable
amount [ (
% reductions from
 Principal  1  principal amount )] 16.4a

Equation Card

Besley_EQ.indd 4 3/24/10 5:36 PM

 Required loan
Amount of funds
(
needed for use
 ____________________________
) ( Earnings available to )
common stockholders  0
EPS  _____________________
(principal)amount
1 [
Reduction from the principal
stated as a decimal
] ( Number
shares outstanding )
of common

16.5 (EBIT  I)(1  T)  Dps

 ____________________  0 17.6
ShrsC

Chapter 17 Dps
EBITFinBE  I  _______ 17.7
Financial Planning and Control (1  T)

EPS
Sales level
Full capacity sales  _______________________ 17.1 Degree of _____
%
in EPS  _______
EPS ( )
( )
Percent of capacity used
to generate sales level
financial  DFL  ___________
leverage %
in EBIT
EBIT
______
EBIT ( )
EPS*  EPS
F  ___________________
QOpBE  ______ F 17.2
(
__________
EPS
 ______________
) 17.8
P  V Contribution margin EBIT*  EBIT
(
____________
EBIT )
F
SOpBE  ________ F
 __________________ EBIT
17.3 DFL  ______________
1 ( )
V
__
P
Gross profit margin EBIT  EBITFinBE

EBIT
 ________ when Dps  0 17.9

NOI EBIT  I
Degree of
operating  DOL  %
______

in NOI  ________
___________ NOI ( )
%
in sales
Sales Degree of
leverage ______
Sales ( ) total  DTL  DOL  DFL
leverage
NOI*  NOI

(
____________
NOI
_______________
) 17.4 
Gross profit
___________  EBIT
________________
 Sales EBIT  EBITFinBE
(
Sales*
_____________
Sales ) EBIT
Gross profit
 ______________
EBIT  EBITFinBE
Q(P  V)
DOLQ  _____________
Q(P  V)  F  ________
Q(P  V)
S  VC  __________________
EBIT  I [Q(P  V)  F]  I
} when
Dps  0
S  VC
 ___________
S  VC  F 17.10

Gross profit
 ___________ 17.5
EBIT

Equation Card

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