Corporate Finance formula
15 Dividend Yield
16
Constant Growth Dividend Discount
Model
17
Dividend Discounted Model
18
Equivalent annual cost (EAC)
19
Estimating Expected Rates of Return with Constant Growth
Dividend
20 Growth rate g = ROE X plowback ratio
21 Return on Equity
22
Present Value of Growth
Opportunity
23 P/E ratio P/E = P 0/ EPS 24 NPV PV – (required investment) 25 NPV(A+B) NPV (A+B) = NPV (A) + NPV (B)
26 Percentage return
27 Variance σ2
28
Standard deviation σ
29 General Cost of capital
30
Cost of capital with only Debt and
Equity
31 After-tax Cost of Capital: WACC
32
Covariance of asset 1 and asset 2
33 Two assets portfolio variance
34
N assets portfolio variance
35
Beta for one asset i : βi
36
General portfolio β
37
Portfolio β with only Debt and
Equity
38 CAPM model r = r f + β (r m – r f ) where r m is the market return and r f is the risk free rate 39 Risk premium ( r - r f )
r - r f = β (r m – r f ) where r m is the market return and r f is the risk free rate
40 Expected return on preferred stock
41 Arbitrage Pricing Theory Return = α + b 1(r factor1) + b 2(r factor2) + b 3(r factor3) + …+ noise
42
Fama-French three-factor model
r - r f =b market (r market factor )+b size (r size factor )+ b book-to-market (r book-to-market factor )
i = the nominal or Annual Percentage Rate n = the number of periods
m = the number of compounding periods per year EAR = the Effective Annual Rate
ln = the natural logarithm, the logarithm to the base e
e = the base o
f the natural logarithm ≈ 2.71828
PMT = the periodic payment or cash flow
Perpetuity = an infinite annuity
g = continuous growth rate
DIV=dividend
EPS= earns per share P0= current price
NPV= net present value
R = return
= mean of x
Rm market portfolio return Rf risk free return
ρ12 correlation between asset 1 and 2
