1. Formulae of Financial Management
1) Future Value of a Single amount = PV (1+r)n
Or
Future Value of a Single amount = PV × FVIF r, n
Linear Interpolation Method =
ܸ݈ܽ‫݁ݑ݈ܸܽ ݐݏ݁ݓ݋ܮ − ݁ݑ‬
‫ + ݎܻܽ݁ ݂݋ .݋ܰ ݐݏ݁ݓ݋ܮ ݎ݋ % ݐݏ݁ݓ݋ܮ‬ × ݂݂݀݅݁‫݁ܿ݊݁ݎ‬
‫݃݅ܪ‬ℎ݁‫݁ݑ݈ܸܽ ݐݏ݁ݓ݋ܮ − ݁ݑ݈ܸܽ ݐݏ‬
2) Future Value for Multiple Cash Flow = PV (1+r)n-1
3) Future Value for an Annuity:
ሺଵା௥ሻ೙ ି ଵ
‫ ܣ‬ቂ ቃ
௥
FVA n =
Or
FVA n = A × FVIFA r, n
4) Doubling Period:
଻ଶ
௥
i) Rule 72 =
଺ଽ
௥
ii) Rule 69 = 0.35 +
ଵ
ሺଵା௥ሻ೙
5) Present Value of a Single Amount: P.V = FV
Or
PV = F V × PVIF r, n
6) Present Value for an Annuity:
భ
ଵି ሺభశೝሻ೙
×ቈ ቉
௥
PVA n =A
or
PVA n =A × PVIFA r, n
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2. 7) Present Value for a Perpetuity:
ଵ
௥
PVA∞ =
Or
PVA∞ = A × PVIFA r, ∞
SHORT TERM COMPOUNDING OF INTEREST RATES
௥ ௡×௠
× ቀ1 + ቁ
௠
8) FV n =PV
Or
FV n =PV ×‫ ܨܫܸܨ‬ೝ , ௡×௠
೘
Where, n = years & m= No. Of times Compounded or discounted in a
year
௠×௡
ଵ
×ቈ ೝ ቉
ቀଵା ቁ
9) PV n = F V
೘
ௌ௧௔௧௘ௗ ஺௡௡௨௔௟ ூ௡௧௘௥௘௦௧ ோ௔௧௘ ௠
ቂ1 + ቃ − 1
௠
10) Effective rate of Interest =
LOAN AMORTISATION
భ
ଵି ሺభశೝሻ೙
×ቈ ቉
௥
11) Loan Amount = EAI
INVESTMENT CRITERIA
ூ௡௜௧௜௔௟ ூ௡௩௘௦௧௠௘௡௧
஺௡௡௨௔௟ ஼௔௦௛ ூ௡௙௟௢௪
12) PBP =
Or
஻
PBP = ‫ + ܧ‬஼
஺௩௚.௉஺்
஺௩௚.ூ௡௩௘௦௧௠௘௡௧
13) ARR =
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3. 14) NPV = Sum of Present Value of Cash Flows – Present Value of
Initial Investment
௉௥௘௦௘௡௧ ௏௔௟௨௘ ஻௘௡௘௙௜௧ ሺ௉௏஻ሻ
ூ௡௜௧௜௔௟ ூ௡௩௘௦௧௠௘௡௧
15) BCR =
௉௏஻ିூ௡௩௘௦௧௠௘௡௧
ூ௡௩௘௦௧௠௘௡௧
16) Net BCR =
Or
ே௉௏
ூ௡௜௧௜௔௟ ூ௡௩௘௦௧௠௘௡௧
BCR – 1 OR
17) IRR = Calculated by using Interpolation Method
18) Modified Internal Rate of Return
஼௔௦௛ ி௟௢௪
∑௡
௧ୀ଴ ሺଵା௥ሻ೟
i. PVC =
ii. TV = ∑௡ ‫ݏܽܥ‬ℎ ‫ ݏݓ݋݈݂݊ܫ‬ሺ1 + ‫ݎ‬ሻ௡ି௧
௧ୀ଴
்.௏.
ሺଵାெூோோሻ೙
iii. P.V.C =
COST OF CAPITAL
COST OF DEBT
19) WACC = We Ke + Wp Kp + Wd Kd (1-t)
Where; We = Weights of Equities
Ke = Cost of Equities
Wp = Weights of Preference
Kp = Cost of Preference
Wd = Weights of Debentures
Kd = Cost of Debentures
t = Tax rate
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4. 20) Irredeemable Debentures
ூ
஼ெ௉ ௢௥ ே௉
a. Pre Tax Cost of Debt = Kd =
Where, Kd = Cost of Capital
I = Interest
CMP = Current Market Price
NP = Net Sales Proceeds
ூ ሺூି௧ሻ
b. Post Tax Cost of Debt = Kd =
஼ெ௉ ௢௥ ே௉
Where, t = Corporate Tax
21) Redeemable Debentures
ሺಷషುబ ሻ
ூା
೙
଴.଺ሺ௉బ ሻା ଴.ସ ሺிሻ
a. Pre Tax Cost of Debt = Kd =
ಷషುబ
ூ ሺଵି௧ ሻା
೙
଴.଺ሺ௉బ ሻା ଴.ସ ሺி ሻ
b. Post Tax Cost of Debt = Kd =
1. Approximation Formula:
ሺಷషುబ ሻ
ூା
೙
ଵ/ଶ ሺிା௉బ ሻ
a. Pre Tax = Kd =
ሺಷషುబ ሻ
ூሺூା௧ሻା
೙
ଵ/ଶ ሺிା௉బ ሻ
b. Post Tax = Kd =
COST OF PREFERENCE CAPITAL
22) Irredeemable Preference Share
஽
஼ெ௉ ௢௥ ே௉
a) Without dividend tax = Kp =
஽ ሺଵା௧ೣ ሻ
஼ெ௉ ௢௥ ே௉
b) With dividend tax = Kp =
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5. 23) Redeemable Preference Share
ሺಷషುሻ
஽ା
೙
଴.଺ሺ௉ ሻା଴.ସሺிሻ
a) Without dividend tax = Kp =
ሺಷషುሻ
஽ ሺଵି஽೟ ሻା
b) With dividend tax = Kp =
೙
଴.଺ሺ௉ ሻା଴.ସሺிሻ
COST OF TERM LOAN
24) Kt = R (1-t)
COST OF EQUITY
஽భ
஼ெ௉ ௢௥ ே௉
25) Dividend Capitalisation Approach= Ke =
Where, D1 =Dividend/Share
26) Dividend Capitalisation + Growth Rate Approach =
஽భ
+ ݃
஼ெ௉ ௢௥ ே௉
Ke =
Where, ݃ = Growth rate
27) Capital Asset Pricing Model or Security Market Line:
Ke = Rf + β (Rm - Rf)
Where, Rf = Risk free rate of return.
Rm = market return of portfolio
β = Beta
Rm - Rf = Market Risk Premium
28) Cost of Equity of Bond Yield
Ke = Yield on Long term bonds + Risk Premium
29) Earnings Capitalisation Approach:
ாభ
஼ெ௉ ௢௥ ே௉
Ke =
Where, E1 = Expected Earnings/Share
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6. 30) Cost of Retained Earnings: Kr = Ke
CAPITAL STRUCTURE
NET INCOME APPROACH
஽ ா
31) WACC = ቀ஽ାாቁ ‫ܭ‬ௗ + ቀ஽ାாቁ ‫ܭ‬௘
ூ௡௧௘௥௘௦௧
௄೏
32) D=
ேைூିூ௡௧௘௥௘௦௧
௄೐
33) E=
NET OPERATING INCOME APPROACH
஽
K ୢ = ‫ܭ‬ை ሺ‫ܭ‬௢ − ‫ܭ‬ௗ ሻሺ ሻ
ா
34)
ேைூ
௄ೀ
35) V=
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