help on Principles of Financial Management problems!

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FormulasheetforFINC33011.xlsx
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Statements

Income Statement Balance Sheet
Revenue (Sales) Current assets
Cost of Goods Sold (COGS) Cash and cash equivalents
Gross profit Receivables
Inventories
Sales, General and administrative Prepaid expenses
Total operating expenses Other current assets
Operating income or profit (EBIT) Total current assets
Interest Expense Non-current assets
EBT (Earnings before taxes) Property, plant and equipment
Other income (expense) Accumulated Depreciation
Income before taxes Net property, plant and equipment
Taxes Equity and other investments
Net income Goodwill
Dividends to Preferred Stockholders (if any) Other long-term assets
Earnings (if no preferred stock then earnings = net income) Total non-current assets (Long-term)
Dividends to Common Stockholders TOTAL ASSETS
Retained Earnings Current liabilities
Short-term debt
Number of Shares Outstanding (Basic) Accounts payable
Taxes payable
Market Price per share Accrued liabilities
EPS (earnings per share) Other current liabilities
Total current liabilities
Non-current liabilities
Long-term debt
Deferred taxes liabilities
Deferred revenues
Other long-term liabilities
Total non-current liabilities (Long-term)
Total Liabilities
Stockholders' equity
Common stock
Additional paid-in capital
Retained earnings
Treasury stock
Accumulated other comprehensive income
Total stockholders' equity
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY

Ratios

Ratios Ratio Formulas
Numerators / Denominators
Profitability Ratios
Gross Profit Margin Gross Profits / Sales
Operating Profit Margin Operating Profits / Sales
Net Profit Margin Net Income / Sales
Earnings per Share (EPS) Net Income / #Shares Outstanding
Return on Assets (ROA) Net Income / Total Assets
Return on Equity (ROE) Net Income / Common Stockholders' Equity
Liquidity Ratios
Current Ratio Current Assets / Current Liabilities
Quick Ratio Current Assets-Inventory / Current Liabilities
Debt Ratios
Debt to Total Assets Total Liabilities / Total Assets
Equity Multiplier Total Assets / Common Stockholders' Equity
Times Interest Earned EBIT / Interest Expense
Activity Ratios
Average Collection Period Accounts Receivable / (Sales / 365)
Accounts Payable Turnover COGS / Accounts Payable
Days AP 365 / AP Turnover
Inventory Turnover Sales / Inventory
Days Inventory 365 / Inventory Turnover
Total Asset Turnover Sales / Total Assets
Market Ratios
Price/Earnings (P/E) Market Price per Share / EPS (Earnings per share)
Market/Book (M/B) Market Price per Share / Book Value per Share
Modified DuPont Analysis
Net Margin Net Profit Margin
Total Asset Turnover Total Asset Turnover
ROA Net Profit Margin * Total Asset Turnover
Equity Multiplier Equity Multiplier
ROE ROA * Equity Multiplier
Net working capital = total assets – fixed assets – current liabilities

Cost of Capital

Dividend (Gordon) Growth Model Equation for Valuing Stock or Values The WACC Formula
The book uses k for rate. The r below is the rate. WACC = (wd * ATkd) + (wp * kp) + (wcs * kcs)
P0 = D1 / (rs – g) w = weight, ATk = After Tax Cost of Debt, k = cost
or
rs = (D1 / P0) + g Breakpoint for new cash source = Available Retained Earnings/target % of Total capital
**To get D0 to D1 multiplythe dividend by (1 + growth rate) Marginal cost of capital (MCC) cost of next dollar of capital
r = Cost (Rate), P = Price (Value), g = growth rate
To calculate the growth rate rearrange the equation Capital Structure Basics
g= rs-(D1/Po)
Break-even Analysis
EBIT = Sales - Variable Costs - Fixed Costs
For new stock, subtract the costs of selling the stock
Pn is the net price after all costs are subtracted
Pn = Po-flotation costs - underpricing Degree of Operating Leverage (DOL)
rs = (D1 / Pn) + g DOL = (SALES - VC) / (SALES - VC - FC)
OR
Preferred Stock/Perpituity Equation DOL = % change in EBIT/% change in sales
R = D / net P        or      P = D / R Degree of Financial Leverage (DFL)
R = Rate (Cost), D = Dividend (Payment), P = Net Price (Value) DFL = EBIT / (EBIT-Interest Expense)
Net Price is the sales price - fees or flotation costs OR
DFL =% change in NI / % change in EBIT
After Tax Cost of Debt Rearragned to find the % change in Net Income
% change NI = % change EBIT/ DFL
Before Tax Cost * ( 1 - ISTR)
before tax cost of debt * (1-marginal tax rate)
Degree of Combined Leverage (DCL) Base level of Sales
DCL = (Sales-VC) / (Sales-VC-FC-Int)
Growth Rate of Dividends OR
DCL = % change in NI / % change in sales
Use the RATE formula in Excel OR
or  (FV/PV)1/n - 1   DCL = DOL * DFL
CAPM Equation
10.508
rs = RF + [β* (rm – RF)]
r = Rate(Cost), b = beta, RF = Risk Free Rate
Capital Assets Pricing Model (CAPM):
ka = krf + [(km - krf) x β ]        or        rj = RF + [ β    x  (rm  - RF)]
Capital Budgeting Formulas
Payback = # yrs with negative balance + ABS(last negative balance/next year CF)
NPV = (RATE, Cash Flows) + (-initial investment)
IRR = (Initial Investment:all cash flows)
MIRR = (Intital Investment:all cash flows,0,WACC)
growth = (Current - Prior) / Prior

FORMULAS

Excel TVM formulas Cash Flows and project decisions
The WACC Formula Example of PV of uneven CF Year 1 Year 2 Year 3
WACC = (wd * ATkd) + (wp * kp) + (wcs * kcs) Time Value of Money Formulas rate 10% 100 200 300
w = weight, ATk = After Tax Cost of Debt, k = cost Future Value  =FV (rate, nper, pmt, pv) PV of cash flows $481.59
Present Value  =PV (rate, nper, pmt, fv)
Expected Value Rate  = RATE (nper, pmt, pv, fv) Equity Value = Operating Value - Debt Value - Preferred Value
µ = ∑ (V x P) Number of periods  = NPER (rate, pmt, pv, fv)
Payment  = PMT ( rate, nper, pv, fv) Market price/number of shares outstanding price /share (Eq/share)
Standard Deviation
σp = √ ∑ P(V-µ)2 Future Value of a Single Amount Weighted Average proportion of A * value of A + proportion of B * value of B +….
FV = PV(1 + k)n = PV(FVFk,n)
Coefficient of Variation:
CV = Standard Deviation / Mean Present Value of a Single Amount Discounted Cash Flow Model
PV = FV[1/(1 + k)n] = FV(PVFk,n) Vo = CF1/(1+k)1 + CF2/(1+k)2 + CF3/(1+k)3 + . . . + CFn/(1+k)n
Expected Rate of Return of Portfolio
E(Rp) = (wa x  E(Ra)) + (wb x  E(Rb)) Future Value of an Ordinary Annuity
FVA = PMT[(1 + k)n - 1/k] = PMT(FVFOAk,n) Payback
Standard Deviation of a Two-Asset Portfolio: Total costs = cost + installation
 r is the correlation coefficient between the two assets Present Value of an Ordinary Annuity - Cash year 1
σp = √wa²σ² + wb²σ² + 2wawbra,bσaσb. PVA = PMT x {1 - [1/(1 + k)n]}/k x (1+k) = PMT x (PVFOAk,n) -cash year 2
- cash year 3
Probability = The probability of an event is equal to the number of events likely to occur (X) divided by the number of exposure units (N) Future Value of an Annuity Due etc.
FVAD = PMT(FVFADk,n) amount need to bring initial cost to 0/cash final year
Add number of years and partial year to determine time needed to earn the initial costs
Present Value of an Annuity Due
PVAD = PMT(PVFAk,n) Independent project: the firm can accept any project that meets the minimum requirements
Fisher Equation: interest rates Most firms would expect a NPV>0; IRR > WACC; MIRR>WACC
Perpetuities Mutually exclusive projects: the firm has limited funds for a project and will usually take the ones that use most of their budget and have the highest NPV
PVP = PMT x (1/k) or PVP = PMT/RATE
Net present value = present value of future cash flows - initial investment
Computing the Interest Rate (RATE):
Where r1 is the nominal rate of interest, Rf is the risk-free rate, r* is the real rate of interest, IP is the inflation premium and RP1 are risk premiums =  (FV/PV)1/n - 1   IRR = rate of present value of future cash flows -initial investment
use IRR formula in Excel
r* = Rf - IP Computing the payment (PMT): 
PVOA = PMT x [1 - (1 /(1 + k)n ) / k] x ( 1 + k) 
Continuous compounding
Amount = Pert
P is the principal
r is the rate of interest
t is the time in years
e is euler's constant
Continuous Compounding
FV = PV x e(k x n)    or   FV = PV x 2.71828(k x n)

PV = CF ÷ r

Blank Formats

Excel TVM formulas
NPER NPER
Time Value of Money Formulas RATE RATE
Future Value  =FV (rate, nper, pmt, pv) PV PV Amortization Worksheet interest rate 0.00%
Present Value  =PV (rate, nper, pmt, fv) PMT PMT A B C D = A*B E = (C-D) F = (B-E)
Rate  = RATE (nper, pmt, pv, fv) FV FV Month Interest rate Balance at beginning of year Payment Interest Principle Balance
Number of periods  = NPER (rate, pmt, pv, fv) 0 0 $0.00
Payment  = PMT ( rate, nper, pv, fv) CPT (Compute)  ? CPT (Compute)  ? 1 0
Gordon Growth Model Equations 2 0
NPER NPER P0 = D1 / (rs – g) 3 0
Gordon Growth Model Equation for Valuing Stock RATE RATE or 4 0
PV PV rs = (D1 / P0) + g
P0 = D1 / (rs – g) PMT PMT
or FV FV Common Stock
rs = (D1 / P0) + g Dividend*
**To get D0 to D1 multiplythe dividend by (1 + growth rate) CPT (Compute)  ? CPT (Compute)  ? Market Price
Fees for New Issue
Preferredf Stock Equation NPER NPER Adjusted Market Price
RATE RATE Growth Rate
R = D / P        or      P = D / R PV PV *Determine if Dividend is D0 or D1
PMT PMT **To get D0 to D1 multiplythe dividend by (1 + growth rate)
FV FV Common Stock
Dividend*
After Tax Cost of Debt CPT (Compute)  ? CPT (Compute)  ? Market Price
Fees for New Issue
Before Tax Cost * ( 1 - tax rate) Adjusted Market Price
NPER NPER Growth Rate
RATE (Coupon Rate) RATE (Coupon Rate) *Determine if Dividend is D0 or D1
PV (Coupon Price) PV (Coupon Price)
Growth Rate of Dividends PMT PMT Common Stock
RATE (Mkt Rate) RATE (Mkt Rate) Dividend*
Use the RATE formula in Excel PV (Mkt Price) PV (Mkt Price) Market Price
FV FV Fees for New Issue
Compounding Compounding Adjusted Market Price
CAPM Equation CPT (Compute) CPT (Compute) Growth Rate
*Determine if Dividend is D0 or D1
rs = RF + [b * (rm – RF)] WACC
NPER NPER Rates (Costs) Weights/Proportion rates * weights
RATE (Coupon Rate) RATE (Coupon Rate) Debt
PV (Coupon Price) PV (Coupon Price) Preferred
PMT PMT stock
RATE (Mkt Rate) RATE (Mkt Rate) New Stock
PV (Mkt Price) PV (Mkt Price) sum (WACC)
FV FV
Compounding Compounding
CPT (Compute) CPT (Compute)

WACC

Cost of capital ~ cost of $ for a firm ~ return~ discount rate~ interest rate~hurdle rate for new investments
WACC= (rd* Wd)+(rp*Wp)+(Rr*Wr) +(rn*Wn)
A firm raises money from retained earnings, debt, preferred stock or selling stock(raising equity)
Debt raises cash by a loan or selling bonds.
PV of a bond = price - floation cost and any other selling costs
FV = par value or face value
Pmt = coupon rate * par value may be adjusted if paid more than annually
Nper = term of the bond may be adjusted if pmt is more than annually
rate = cost of bond. Use the rate formula from Excel May be adjusted if pmt is more than annually
Debt has a tax benefit. Therefore we use the after-tax cost of debt to calculate the cost of debt
rd = before cost of debt *(1-T) where T is the marginal tax rate
Equity
prefered stock is a hybrid between equity and debt.
If you are selling more preferred, you must use the net value
Np = Price of Preferred - cost of selling the preferred
rp = Divp/Np where rp is the cost (rate) of preferred and Divp is the dividends the preferred stock pays.
Common Stock
Dividend (Gordon) Growth Model
rs = (Div1/Po) +g Div1 is the dividend at the end of the next period. Div1 = Div*(1+g)
Po is the price of the stock If selling stock Pn = Po - cost of sales
g is the dividend growth rate
calculate the growth rate rate formula in Excel
PV = initial dividend pmt = 0
FV = ending dividend nper = number of periods
CAPM
rs = Rf +b*(Rm-Rf) Rf is the risk-free rate
b is the beta is a measure of risk of firm
Rm is return on the market, usually proxied by an index.
retained earnings
growth model or CAPM
New stock, selling stock
growth model but adjust the Po for selling costs (floations etc.)

Capital Strucuture

EBIT=SALES-VARIABLE COSTS-FIXED COSTS FC = fixed costs
P= price
UNIT SALESbe = FC/(P-VC) VC= variable costs
Q= quantity
TOTAL REVENUE = P X Q DOL= degree of operating leverage
DFL= degree of financial leverage
% change = (current-prior)/prior DCL= degree of combined leverage
DOL = %change in EBIT / % change in SALES
DOL= (SALES-VC) / (SALES-VC-FC)
DFL= %change in NI / % change in EBIT
DFL = EBIT/ (EBIT-I)
DCL = % change in NI / % change in Sales
DCL = DOL X DFL
Discounted Cash Flow model
DCF model
determine the FCF for each forecasted year
calculate the FCF1 for the year after the forecast (horizon)
Using the growth model and the FCF for the horizon calculate the terminal value
Sum the PV of each forecasted FCF or use NPV formula
Calculate the PV of the terminal value
Add the PV of the terminal value + the sum of the PV of each forecasted year
This is the PV of the firm's operations
Value of Equity = Value of operations - value of debt