0 évaluation0% ont trouvé ce document utile (0 vote)
191 vues2 pages
1. The document discusses various time value of money concepts such as simple and compound interest, annuities, perpetuities, and bond valuation.
2. It also covers risk and return measures like standard deviation, beta, capital asset pricing model, and diversification.
3. Capital budgeting techniques like accounting rate of return, payback period, net present value, internal rate of return and profitability index are summarized.
Description originale:
Attached is a Finance Formula Sheet for UTS Fundamentals of Finance Course.
1. The document discusses various time value of money concepts such as simple and compound interest, annuities, perpetuities, and bond valuation.
2. It also covers risk and return measures like standard deviation, beta, capital asset pricing model, and diversification.
3. Capital budgeting techniques like accounting rate of return, payback period, net present value, internal rate of return and profitability index are summarized.
1. The document discusses various time value of money concepts such as simple and compound interest, annuities, perpetuities, and bond valuation.
2. It also covers risk and return measures like standard deviation, beta, capital asset pricing model, and diversification.
3. Capital budgeting techniques like accounting rate of return, payback period, net present value, internal rate of return and profitability index are summarized.
Time Value of Money S= Subscription Price Risk and Return 𝑡𝑐 = company tax rate
Simple interest N=#of existing shares entitled for 1 share Historical
𝐷1 𝐹𝑉 = 𝑃𝑉 + 𝐼𝑁𝑇 or 𝑃𝑉(1 + 𝑖 × 𝑛) G=r + End−Start 𝐷1 𝑃0 Return: Rt = 𝑆𝑡𝑎𝑟𝑡 Capital Structure 𝐼𝑁𝑇 = 𝑃𝑉 × 𝑖 × 𝑛 R= +g £R1+R2… Earnings Per Share: 𝑃𝑉 = 𝐹𝑉/(1 + 𝑖 × 𝑛) 𝑃0 Average Return: R = n (𝐸𝐵𝐼𝑇 – 𝐼) × (1 – 𝑡𝑐 ) Dividend and Growth over Years 𝐷3 SD: S = √P(𝑅1 − 𝑅̅)2 + ⋯ + (𝑅𝑛 − 𝑅̅)2 /𝑛 − 1 D1 (1+r)-1 + D2(1+r)-2 + ( 𝑥(1 + 𝑟)^ − 2) 𝑁𝑜.𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑜𝑝𝑡𝑖𝑜𝑛 1 Compounded interest 𝑟−𝑔 𝑅̅ = average return Only allows changed in EBIT, doesn’t consider costs of 𝐹𝑉 = 𝑃𝑉(1 + 𝑖)𝑛 𝑅 = actual return for observation 𝐹𝑉 different debt levels 𝑃𝑉 = 𝑛 or 𝐹𝑉(1 + 𝑖)−𝑛 $ Return per share = Selling price - purchase price + (1+𝑖) Capital Budgeting total dividends 1. Accounting Rate of Return Definitions Effective annual rates (EAR) Average net profit WAAC: required return that pays all interest and To convert a nominal rate to an effective rate Expected (Initial Cost + Salavage)/2 Expected return: E(R)= ∑ 𝑃𝑖 × 𝑅𝑖 principal and compensates shareholders 𝐸𝐴𝑅 = (1 + 𝑖)𝑚 − 1; m = no. compounding periods Capital Budgeting: selecting projects that maximise 2 2. Payback Period (length) SD: 𝜎 = √∑ 𝑃𝑖 × [𝑅𝑖 − 𝐸(𝑅)] shareholder wealth Annuities 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑐𝑜𝑠𝑡 Efficient Marketing Hypothesis: no one can consistently (1+𝑖)𝑛 −1 𝑅𝑖 = return for state i 𝐹𝑉 = 𝑃𝑀𝑇 [ ] 𝑌𝑒𝑎𝑟𝑙𝑦 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤𝑠 make abnormal profits 𝑖 𝑃𝑖 = probability of state i Modigliani and Miller: Suggests that overall cost of PMT = annuity payment n = number of payments 3. Discounted payback capital is constant regardless of debt, value is Portfolio determined by real assets, especially as interest i = per period interest rate Cash flows are converted to PV first to remove TVM 1−(1+𝑖)−𝑛 CAPM: E(R) = 𝑅𝑓 + 𝛽(𝑅𝑚 − 𝑅𝑓 ) payments are tax deductible 𝑃𝑉 = 𝑃𝑀𝑇 [ ] problem 𝑖 Rf = risk free rate Risk Premium: excess after comparing returns to risk- 4. Net Present Value Rm = expected free asset (cash) Perpetuities return market Systematic Risk: affects large number of assets being 𝐶𝑎𝑠ℎ 𝑓𝑙𝑜𝑤 𝐶𝑎𝑠ℎ 𝑓𝑙𝑜𝑤 PV = PMT/i − 𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 + + B = beta of security attributed to unavoidable market factors PMT(1 − (1 + i)−n)/i simplified (1 + %) (1 + %)2 Unsystematic Risk: affects single asset and can be 5. Internal Rate of Return “The current return eliminated by diversification IRR is the rate of return that gives a 0 NPV on the market is 15% Covariance: degree of association between two Debt Accept projects with a IRR > discount rate and the market risk premium is 6%” Correlation: standardises from -1 and +1 moving Valuing short-term debt (bills) Reject projects with IRR < required return Rm=15% Rm-Rf=6% Rf=9% together is 1 PV = FV/(1 + rt) Capital Gains Yield: rise in price of a security (stock) r = interest rate (market rate, or YTM) Profitability Index Expected Return: (𝑟𝑝 ) = ∑ 𝑊𝑖 × 𝐸(𝑅𝑖 ) IRR: estimate expected return given cash flow t = time to mature PI = (NPV + Initial Cost)/Initial Cost Risk: Bp = ∑ 𝑊𝑖 × B
Valuing long term debt (bonds)
Accept if PI > 1 Capital Gains = 𝐸𝑛𝑑−𝑆𝑡𝑎𝑟𝑡 MC Reject if PI < 1 𝑆𝑡𝑎𝑟𝑡 1−(1+𝑖)−𝑛 −𝑛 AAR measures profitability over cash flows PV = PMT [ ] + FV(1 + 𝑖) Gov Bond = Rf Required return and SP have an inverse relationship 𝑖 Net After-tax Cash flow RR is based on the dividend yield + capital gains yield Discount: Price < FV Pre-tax CF (1 – 0.3) + Depreciation x 0.3 # 𝑆ℎ𝑎𝑟𝑒𝑠 𝑥 𝑃𝑟𝑖𝑐𝑒 Expected Portfolio Weight NPV = 0 when the discount rate used is the IR Par: Price = FV 𝑆𝑢𝑚 𝑜𝑓 # 𝑠ℎ𝑎𝑟𝑒𝑠 𝑥 𝑃𝑟𝑖𝑐𝑒 Premium: Price > FV Tax on sale of an Asset Acceptor (L) and Borrower (B) (WDV – SV) x 0.3 Market Risk Premium: SV > BV = Profit or SV < BV = Loss 1. B = 1 so use that to find E(r) Book Value (WDV) = Initial Cost +/- Acc Dep 2. E(r) - Yield CF: CF-START + CF-LIFE (PV Annuity) + CF-END (PV) Equity Effect of ventures = (# shares x $) + profit + profit Share Price (no growth) OP Cost = - X Amount and + Avoided Tax Effect Weighted Average Cost of Capital P=D/r Total Market Value of the firm: V = D + E + P Share Price (constant Growth) NPV P0 = D1 / (r – g) or P0 = D0(1 + g) (𝑟−𝑔) Profile 𝐷 𝐸 WACC = 𝑅𝑑 (1 − 𝑡𝑐 ) ( ) + 𝑅𝑒 ( ) + 𝑅𝑝 ( ) 𝑉 𝑉 𝑉 𝑃 Rd= YTM 𝐷1 r= +𝑔 𝑅𝑑 = market return on debt finance 𝑃0 Doesn’t consider risk and needs dividends 𝑅𝑒 = market return on equity Rights Issue 𝑅𝑝 = market return on preference shares Re = 3 ways 𝑁(𝑀−𝑆) 𝐷 = market value of debt 1. Constant dividend: 𝑅𝑒 = Div/𝑃0 Value of a Right: R = 𝑁+1 𝑅 𝐸 = market value of ordinary shares (no. issued × 2. Dividend growth: 𝑅𝑒 = (𝐷𝑖𝑣1/𝑃0 ) + g Ex-Rights Price: Px = M - or Px = S + R current market $) 3. Risk: Re = 𝑅𝑓 + 𝛽(𝑅𝑚 − 𝑅𝑓) 𝑁 M=current share price 𝑃 = market value of preference shares Rp = D / Po Start Over the life End WAAC Example Purchase of Sales Sale of plant Dividend Growth Example Book value of Long-Term Debt ($4m), Preference G=0.20 for next 2 years then 0.045 after plant 665,000 200,000 Shares ($1m), Ordinary Shares ($2m) R= 0.13 -1,500,000 Less costs P/L on sale D0= 0.50 Inventory 350,000 90,000 The long term debt is perpetual and carries a fixed rate -350,000 Tax saving Recovery of of 8.5% pa. It is advised that the current replacement 30,000 inventory cost for this type of debt is 7.25% pa 350,000 Market value = 4m × 8.5%/7.25% =4689655 Total - Total 345,000 Total Current market require rate of return = 7.5% 1,850,000 1 − (1.08)−10 640,000 [ ] 0.08 (1.08)−10 The company has 1,000 ordinary shares on issue and each share pays a constant dividend of 0.40 per year (likely to stay this way indefinitely). The current market Capital Budgeting Costs price of a share in $4.00 Standard Deviation Example Sale of old machine Inflow; Start MV = 1m × $4 (market price) = $4000000 Example: the yearly share prices are 2006, $10; 2007, BV of old machine No Current market require rate of return = 0.4/4 = 10% $16; 2008, $12; 2009, $18 Purchase price of new Outflow; Start Average yearly return for 2007 = (16 – 10)/10 = 60% Installation cost Outflow; Start Preference shares have a $10 FV, paying an annual Avg yearly return for 2008 = -25% Selling expense for new Outflow; Over dividend of 5%. The last sale of one of the company’s Avg yearly return for 2009 = 50% Life preference shares on the market was at a price of Average or 𝑅̅ = (60 + -25 + 50)/3 = 28.33% Market research No $6.25 S= Sale of new product Inflow; Over Life MV = 1m/10 × 6.25 = 625000 √(60 − 28.33)2 + (−25 − 28.33)2 + (50 − 28.33)2/ Depreciation expense No Current market RRR = $10 × 5%/6.25 = 8% 3−1 Expense that remains No Increase tax saving Inflow; Over Life Weight × Required Rate of Return or Market Rate = Reduced sales in existing Outflow; Over Totals for WACC Expected Return Example products Life Increase in sale from new Inflow; Over Life Capital Budgeting Example Decrease cash operating cost Inflow; Over Life New machine costs $1,500,000 and will be sold in 10 years for an estimated salvage value of $200,000. The Debt Finance: tax allowable depreciation life is 15 years at 30% + - - Access to capital - Dilutes control Cash flow at start -1,500,000 markets - Demand for info Depreciation expense = 1,500,000 ÷ 15 = 100,000 - Raise the firm’s - Increased Costs Tax savings = 100,000 x 30% = $30,000 per year Cash flow in year 10 (when sold) of -200,000 Equation of SML profile Share Amount Invested E(r) Beta - Align managers’ Book value in year 10 is 1,500,000 – (10 x 100,000) = X Y 35% 65% 7% 13% 0.5% 1.5 goal with 500,000 shareholders’ 100,000 is accumulated depreciation - Market valuation Tax affect = (500,000 – 200, 000) x 30% = 90, 000 500,000 – 200, 000 is BV – SV Equity Finance: Annual cash operating costs are $500,000 and + - expected cash sales are $950,000 - Quicker - Dilute control After-tax cash inflow = 500,000 (1 – 0.3) - Certainty in - Lower share = 350,000 pricing price After-tax cash outflow = 950,000 (1 – Future Variability Example - Friendly hands - Max 15% 0.3) = 665,000 - Lower cost Fixed cash costs will remain at $350,000 pa. Investment has 50% chance of 12%, 30% chance of $350,000 of stock is required at the beginning of the 15%, 20% chance of -5% year and this cost is reflected in operating cost E(R) = 0.5(12) + 0.3(15) + 0.2(-5) = 9.5% Beta Cash flow at start of -350,000 Standard deviation = Example Cash flow at tend of +350,000 √[0.5(12 − 9.5)2 + 0.3(15 − 9.5)2 + 0.2(−5 − 9.5)2 The required rate of return is 8% = 7.36% Discount rate for NPV