PROFESSIONAL LEVEL EXAMINATION

FINANCIAL MANAGEMENT

FORMULAE AND DISCOUNT TABLES

Formulae you may require:

a. Discounting an annuity
1 1 
The annuity factor: AF1→n = 1  
r  (1  r ) n 

where AF = annuity factor

n = number of payments
r = discount rate as a decimal

b. Dividend growth model: Do (1+ g) + g

ke =
Po

where ke = cost of equity

Do = current dividend per ordinary share
g = the annual dividend growth rate
Po = the current ex-div price per ordinary share

c. Capital asset pricing model: rj = rf + ßj (rm – rf)

where rj = the expected return from security j

rf = the risk free rate
ßj = the beta of security j
rm = the expected return on the market portfolio

D(1  T)
d. e = a ( 1 + )
E
where e = beta of equity in a geared firm
a = ungeared (asset) beta
D = market value of debt
E = market value of equity
T = corporation tax rate

NOTE: Candidates may use other versions of these formulae but should then define the
symbols they use.

ICAEW\2017
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DISCOUNT TABLES
––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
Interest Number of Present value of Present value of
rate years £1 receivable at £1 receivable at
p.a. n the end of n years the end of each of
n years
––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
1% 1 0.990 0.990
2 0.980 1.970
3 0.971 2.941
4 0.961 3.902
5 0.951 4.853
6 0.942 5.795
7 0.933 6.728
8 0.923 7.652
9 0.914 8.566
10 0.905 9.471
––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
5% 1 0.952 0.952
2 0.907 1.859
3 0.864 2.723
4 0.823 3.546
5 0.784 4.329
6 0.746 5.076
7 0.711 5.786
8 0.677 6.463
9 0.645 7.108
10 0.614 7.722
––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
10% 1 0.909 0.909
2 0.826 1.736
3 0.751 2.487
4 0.683 3.170
5 0.621 3.791
6 0.564 4.355
7 0.513 4.868
8 0.467 5.335
9 0.424 5.759
10 0.386 6.145
––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
15% 1 0.870 0.870
2 0.756 1.626
3 0.658 2.283
4 0.572 2.855
5 0.497 3.352
6 0.432 3.784
7 0.376 4.160
8 0.327 4.487
9 0.284 4.772
10 0.247 5.019
––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
20% 1 0.833 0.833
2 0.694 1.528
3 0.579 2.106
4 0.482 2.589
5 0.402 2.991
6 0.335 3.326
7 0.279 3.605
8 0.233 3.837
9 0.194 4.031
10 0.162 4.192
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