In Class Test Formulae

Question 1

What is the formula for ARR?

Answer 1

average annual profit/average investment x 100

Question 2

How is average annual profit calculated for ARR?

Answer 2

Total profit/no. years

Question 3

How is average investment calculated for ARR?

Answer 3

Initial investment + residual value/2

Question 4

How is future value calculated?

Answer 4

PV x (1+r)^n

Question 5

How is present value calculated?

Answer 5

FV x 1/(1+r)^r

Question 6

How is NPV calculated?

Answer 6

ΣCFi/(1+r)^i - investment costs

Question 7

How is profitability index calculated?

Answer 7

NPV/Initial investment

Question 8

How is IRR estimated?

Answer 8

r1 + NPV1 /NPV1 - NPV2 (r2 - r1)

Question 9

How is the present value for a single cash flow calculated?

Answer 9

1/(1 + r)^n

Question 10

How is the present value for an annuity calculated?

Answer 10

1/r (1 - 1/(1 + r)^n)

Question 11

How is the present value for a perpetuity calculated?

Answer 11

1/r

Question 12

How can the nominal rate be calculated if you have the real and inflation rates?

Answer 12

rNominal = ( 1 + rReal)(1 + rInflation) - 1

Question 13

How can the real rate be calculated if you have the nominal and inflation rates?

Answer 13

rReal = (1 + rNominal) / (1+ rInflation) - 1

Question 14

How can the inflation rate be calculated if you have the nominal and real rates?

Answer 14

rInflation = (1 + rNominal) / (1 + rReal) - 1

Question 15

How is the sub annual rate calculated when there are p periods per year?

Answer 15

r = r Annual/p

Question 16

How is the truly equivalent sub annual rate calculated?

Answer 16

r = p√ 1 + r (annual) - 1

Question 17

How is the value of rights per new share calculated?

Answer 17

(MV of share existing rights) - (subscription price)

Question 18

How is the value of rights per pre existing share calculated?

Answer 18

Value of rights per new share/No. of shares to buy one new share

Question 19

What is the second way of calculating the value of rights per pre existing share?

Answer 19

(MV of cumrights) - (subscription price) / no. shares to buy one new share + 1

Question 20

What is the formula for the constant dividend model?

Answer 20

Ke = d/S.oxd

Question 21

What are the formulas for the constant dividend growth model?

Answer 21

ke = d1/Soxd + g

or

ke = d0 (1 + g)/S.oxd + g

Question 22

What is the formula for the constant growth rate?

Answer 22

g = (n√Dt + n/Dt - 1

Question 23

How is the sustainable growth rate calculated?

Answer 23

(1 - PR) x ROCE

Question 24

What is the formula for the capital asset pricing model?

Answer 24

ke = Rf + βe (E[Rm] - Rf)

Question 25

What is the formula for the constant dividend model for preference shares?

Answer 25

kp = d/P.oxd

Question 26

What is the constant perpetual debt model?

Answer 26

kd = I(1-tc)/B.oxd (Kd after tax)

Question 27

What is the formula for WACC?

Answer 27

Ke (S/V) + Kp (P/V) + Kd (B/V)

Question 28

What are the formulas for M&M1?

Answer 28

V = NOI (1 - tc)/p + Btc . or . VL = VU + Btc

Question 29

What is the formula for M&M2?

Answer 29

Ke = p + (1 - tc)(p - kd) B/S

Question 30

What is the formula for M&M3?

Answer 30

WACC = p(1 - tc B/B+S)

Question 31

How is the market value of debt calculated?

Answer 31

B = rdD/Kd