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PV PMT (Pvifa) + FV (Pvif) : B M N o B M I

This document outlines formulas for valuing different types of securities and calculating the cost of capital. It provides formulas to value bonds based on present and future value, preferred stock based on dividend payments, and common stock based on dividend growth. It also gives the Capital Asset Pricing Model approach to calculating cost of equity and formulas for after-tax cost of debt, cost of new common equity, cost of retained earnings, and weighted average cost of capital. Methods for capital budgeting like payback period, net present value, profitability index, and internal rate of return are defined with their respective formulas.

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Arman Shah
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111 views1 page

PV PMT (Pvifa) + FV (Pvif) : B M N o B M I

This document outlines formulas for valuing different types of securities and calculating the cost of capital. It provides formulas to value bonds based on present and future value, preferred stock based on dividend payments, and common stock based on dividend growth. It also gives the Capital Asset Pricing Model approach to calculating cost of equity and formulas for after-tax cost of debt, cost of new common equity, cost of retained earnings, and weighted average cost of capital. Methods for capital budgeting like payback period, net present value, profitability index, and internal rate of return are defined with their respective formulas.

Uploaded by

Arman Shah
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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FORMULA

SECURITY VALUATION:
Valuing Bond : Vb =

PV = PMT (PVIFA k, n ) + FV (PVIF k, n )

M Bo
n

M Bo
2
I

Yield to Maturity =

Valuing Preferred Stock: Vps = D


kps
Valuing Common Stock:
Vs =

D0 (1+g)
ks g

D1
ks g

COST OF CAPITAL:
Cost of Common Equity
The CAPM Approach:

ks = D1 + g
P0
ks = krf + (km-krf)

After-tax cost of debt = kd(1-Tax rate).


Cost of New Common Equity ks =

D1
+g
P0 - flotation cost

Cost of Retained Earning, ks = (D1 /P0) + g


Weighted Average Cost of Capital (WACC)
k wacc wd k d (1 Tc ) w ps k ps wcs k cs wncs k ncs

CAPITAL BUDGETING:
Payback Period = BY
BY
UC
CF

UC
CF
= the year before full recovery
= the unrecovered cost at start of year
= the cash flow during the year

Net Present Value (NPV) = Annual Cash Flow - Initial Investment


(1+k)t
Profitability Index (PI) = Present value of Future Net Cash Inflows
Initial Outlays
Internal Rate of Return: IRR
Initial Investments - Annual Cash Flows = 0
(1+IRR)t

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