VARIOUS FORMULA Flashcards
Price Elasticity of Demand
% Change in QD
_____________
% Change in Price
> 1 Elastic P up TR down
Income Elasticity of Demand
% Change in QD
_____________
% Change in Income
+ Normal Inelastic
- Substitute Elastic
Cross Elasticity of Demand
% Change in QD X
______________
% Change in P of Y
+ Substitute Inelastic
- Complement Elastic
Price Elasticity of Supply
% Change in QS
_____________
% Change in P
> 1 Inelastic
Marginal Cost
MC = VC per unit = AVC per unit
Returns to Scale
% increase in output
________________
% change in input
Multiplier Effect
Increase in Output
Equilibrium GDP
Change in Spending
________________
MPS
Marginal Propensity to Save
Change in Savings
_______________
Change in Disposable Income
Marginal Propensity to Consume
Change in Spending
________________
Change in Disposable Income
Personal Disposable Income
MPS + MPC
MPS
1 - MPC
Total Cost Formula
Y= a + b(x)
FC + VC
CAPM
Capital Asset Pricing Model
Rate of Return = RFR + b (ERR - RFR)
Beta Analysis
b > 1 high systematic risk
b
WACC
% share in Capital X Rate of Return
add all three
debt securities
PS
CS
Binomial Option Model
Create a tree
% of probability (MP - EP)
____________________
1 + interest %
Payback Period
Investment
_________
Annual Cash Inflows
if uneven annual cash inflows:
make a table, add inflows until it totals the investment
Discounted Payback
Investment
_________________________
Discounted Annual Cash Inflows
Accounting Rate of Return
Increase in Acctg Net Income
________________________
Average Investment
Average Investment = compute for the current year net of depreciation then get the average of the ending balances for both years
Accounting net income - deduct depreciation and add tax benefit
Net Present Value
PV Cash Inflows - PV of Investment (same amount)
To get the total PV of cash inflows: at hurdle rate
Make a table
Get the PV for each year (use hurdle rate)
Add up all years
Positive NPV - accept
Negative NPV - reject
Profitability Index
NPV
_______
Investment
IRR or Time Adjusted Rate of Return
PV of Future Cash Outflows (Investment)
________________________________
Annual Cash Inflow
= PV factor
Then look for this PV factor in the table to get the % rate of return
Then compare this to the predetermined rate of return/minimum acceptable rate of return
IRR should be > or = the desired rate of return
to be acceptable
Stated interest rate Simple
P x R x T
2,000 x 6% x 2 yrs = 240
Compound Interest Rate
P x (R) power of time
Effective Interest Rate
2,000 X 6% X 2 = 240
2000 - 240 = 1760
ERR = 240
_____
1,760
APR Annual Percentage Rate
the effective interest rate for fraction of a year
APR formula
Computed as simple interest
2,000 x 6% x 90/360 (OR .25 or 4 times)
= 30
APR = 30
——– x 4
1,970
APR = 6.08%
Ranking of interest rates
Stated rate 6%
Compound 6.18%
Effective Int 6.82% highest
APR 6.08% lowest
Effective APR 6.13%
Real interest rate
Nominal rate + Inflation rate
Nominal interest rate
Real interest rate - Inflation rate
Inflation rate
Nominal - Real rate
Annual Financing Cost on Receivables
% of discount 360 0r 365
_____________ X ______________
1 - % discount total period - discount period
Cost of the loan
OR
Effective Rate of the loan
Interest Paid
___________________________________
Net funds (Principal - compensating balance)
Current Bond Yield
Annual Interest Paid
________________
Bond Market Price
Yield to Maturity - interest rate computation
(1 + r/m) m power - 1
Yield to Maturity with Floatation Cost
YM = Annual Interest + Face - Bond Price
_______________
# of years
_____________________________
.60 (Bond Price) + .40 (Face Value
Bond Price = Face Value - Floatation Cost
Annual interest - sb before tax
Bond Price formula
Face Value - Floatation Cost
Degree of Operating Leverage
% Change in Operating Income
________________________
% change in unit volume
Degree of Financial Leverage
% change in EPS
______________
% change in EBIT
Cash conversion cycle
ICP + RCP = PDP
RCP = AR collection period
Average Receivables
________________
Ave Credit sales per day (365 days)
Average Receivables
Beg + End
_________
2
OR
Average credit sales per day X collection period (RCP)
CREDIT SALES NOT NET!!!
DO NOT DEDUCT THE DISCOUNT!!!
ICP Inventory conversion period
Average Inventory \_\_\_\_\_\_\_\_\_\_\_\_\_\_ COGS per day or Sales per day
Payable Deferral Period
Average Payables \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Purchases per day or COGS per day
Annual carrying cost of inventory formula
average inventory level X unit cost X cost of capital
average inventory level = order size / 2
Operating Cycle
ICP + RCP
Inventory conversion period plus AR collection period
