Stockholm Business School

Formula sheet
Corporate Finance
(COF)
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Present Value calculation

Discount factor Present value of single cash flow

1 𝐶
𝐷𝐹 = PV =
(1 + 𝑟)𝑘 (1 + 𝑟)𝑛

Present value of an annuity

1 1
PV(𝐴𝑛𝑛𝑢𝑖𝑡𝑦) = 𝐶 ∙ ∙ [1 − ]
𝑟 (1 + 𝑟)𝑁

Present value of a growing annuity with growth rate g

1 1+𝑔 𝑁
PV = 𝐶 ∙ ∙ [1 − ( ) ]
𝑟−𝑔 1+𝑟

Present value of a growing perpetuity with growth rate g

1
PV = 𝐶 ∙
𝑟−𝑔

Constant dividend growth model

𝐷𝑖𝑣1
PV (share)0 =
𝑟𝐸 − 𝑔

Future Value calculations

Future value Future value of Annuity

1
FV𝑛 = 𝑃𝑉 ∙ (1 + 𝑟)𝑛 FV (𝐴𝑛𝑛𝑢𝑖𝑡𝑦) = 𝐶 ∙ ∙ [(1 + 𝑟)𝑁 − 1]
𝑟
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Conversion of interest rates

Nominal and real rates Nominal rate after taxes

𝒓−𝒊 𝒓 ∙ (𝟏 − 𝝉)
𝒓𝒓 =
𝟏+𝒊

Effective annual rate to effective period rate Effective annual rate to annual percentage rate

𝒏 𝑨𝑷𝑹 𝒌
𝟏 + 𝒓 = (𝟏 + 𝒓𝒑𝒆𝒓𝒊𝒐𝒅 ) 𝟏 + 𝑬𝑨𝑹 = (𝟏 + )
𝒌

Bonds, MV of debt

Coupon bonds, debt with interest payments

1 1 𝐹𝑉
P = 𝐶𝑃𝑁 [1 − ] +
𝑦 (1 + 𝑦)𝑁 (1 + 𝑦)𝑁

CAPM (Capital Asset Pricing Model)

Security Market Line Beta

𝜎𝑖,𝑀
𝐸[𝑅𝑖 ] = 𝑅𝑓 + 𝛽𝑖 (𝐸[𝑅𝑀 ] − 𝑅𝑓 ) 𝛽𝑖 = 2
𝜎𝑀

Levered beta vs Unlevered beta

Levered beta Unlevered beta

BetaL
BetaU 
BetaL  BetaU1  1 - t m 
D
1  1 - t m 
D
E
E
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WACC (Weighted Average Cost of Capital)

𝐸 𝐷
𝑊𝐴𝐶𝐶 = 𝑟 + 𝑟 (1 − 𝑡𝑎𝑥)
𝐸+𝐷 𝑒 𝐸+𝐷 𝑑

Valuation

Value of Equity Value of Firm

t=n t =n
Value of Equity= å
CF to Equity t CF to Firm t
Value of Firm = 
t=1 (1+k e )t t =1 (1 + WACC) t

Free Cash Flows

FCFF FCFE

FCFE = Net Income - Net Capital Expenditure -

FCFF = EBIT (1- tax rate) - Net Capital
Change in Net Working Capital + New Debt - Debt
Expenditures - Change in Net Working Capital
Repayment.

FCFF from FCFE

Net Capital Expenditures

FCFF = Net Income + Interest (1 -

tax rate) – Net Capital Expenditures Net Capital Expenditures = Changes in
- Change in Net Working Capital Capital Expenditures - Depreciation
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Expected Growth

Expected Growth in EPS Expected Growth Rate in EBIT

Expected Growth Rate in EBIT =ROC *
Expected Growth in EPS = ROE * Retention Rate
Reinvestment Rate

Interest Coverage Ratio

EBIT
Interest Coverage Ratio 
Interest Expense

Value Created in Change of WACC

WACC OLD  WACC NEW
Value Created  FV Beforethe Change
WACC NEW - Growth In NEW WACC

Dividend

Dividends Yields Dividend Payout Ratio

Annual Dividends per share Dividends
Dividend Yield  Dividend Payout Ratio 
Price per share Earnings
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NPV, IRR, MIRR, Payback Period and Profitability Index

Net Present Value (NPV) Internal Rate of Return (IRR)

n n
CFt CFt
NPV  - CF0    0  - CF0  
t 0 (1  r ) (1  IRR ) t
t
t 0

Modified Internal Rate of Return (MIRR)

Payback Period

Ter min al Value 1 / n Initial Cash Outlay

MIRR  ( ) 1 PB 
Initial Investment Annual Net Cash Flow

Profitability Index

n
CFt
 (1  r ) t
PI  t 1
CF0

Return on Capital (ROC)

EBIT (1  t )
Return on Capital (After - tax) 
Average BV of Total Investment in

Return on Equity (ROE)

Net Income
Return on Equity 
Average BV of Equity Investment in Pr oject