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 =

 

 % 

.   +  
 
 
2) Future Value for Multiple Cash Flow = PV (1+r)n-1
3) Future Value for an Annuity:
 !"# $ 
  %
!
FVA n =

Or
FVA n = A FVIFA r, n

4) Doubling Period:
&'
!
i) Rule 72 =

()
!
ii) Rule 69 = 0.35 +


 !"#
5) Present Value of a Single Amount: P.V = FV

Or
PV = F V PVIF r, n

6) Present Value for an Annuity:

+
$ +,-"#
* .
!
PVA n =A

or
PVA n =A PVIFA r, n

PraveenKumar Keskar 1
 7) Present Value for a Perpetuity:

!
PVA =

Or

PVA = A PVIFA r,

SHORT TERM COMPOUNDING OF INTEREST RATES

! 31
/1 + 2
1
8) FV n =PV

Or

FV n =PV 454 - , 31
6

Where, n = years & m= No. Of times Compounded or discounted in a

year

13

* - .
/ 2
9) PV n = F V
6

89:9;< =33>:? @39;!;A9 B:9; 1

1 + % 1
1
10) Effective rate of Interest =

LOAN AMORTISATION
+
$ +,-"#
* .
!
11) Loan Amount = EAI

INVESTMENT CRITERIA
@3C9C:? @3D;A91;39
=33>:? E:AF @3G?HI
12) PBP =

Or
K
PBP = J + E
=DL.M=N
=DL.@3D;A91;39
13) ARR =

PraveenKumar Keskar 2
 14) NPV = Sum of Present Value of Cash Flows Present Value of
Initial Investment
M!;A;39 O:?>; K;3;GC9 MOK"
@3C9C:? @3D;A91;39
15) BCR =

MOK$@3D;A91;39
@3D;A91;39
16) Net BCR =

Or
PMO
@3C9C:? @3D;A91;39
BCR 1 OR

17) IRR = Calculated by using Interpolation Method

18) Modified Internal Rate of Return

E:AF R?HI
39TU
 !"S
i. PVC =

ii. TV = 39TU V 5 1 + "3$9

N.O.
 W@BB"#
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

PraveenKumar Keskar 3
 20) Irredeemable Debentures
@
EWM H! PM
a. Pre Tax Cost of Debt = Kd =

Where, Kd = Cost of Capital

I = Interest
CMP = Current Market Price
NP = Net Sales Proceeds
@ @$9"
b. Post Tax Cost of Debt = Kd =
EWM H! PM
Where, t = Corporate Tax
21) Redeemable Debentures
XYZ[ "
@
#
U.(M[ " U.\ R"
a. Pre Tax Cost of Debt = Kd =

XYZ[
@ $9 "
#
U.(M[ " U.\ R "
b. Post Tax Cost of Debt = Kd =

1. Approximation Formula:

XYZ[ "
@
#
/' R M[ "
a. Pre Tax = Kd =

XYZ[ "
@@ 9"
#
/' R M[ "
b. Post Tax = Kd =

COST OF PREFERENCE CAPITAL

22) Irredeemable Preference Share

^
EWM H! PM
a) Without dividend tax = Kp =

^  9_ "
EWM H! PM
b) With dividend tax = Kp =

PraveenKumar Keskar 4
 23) Redeemable Preference Share
XYZ"
^
#
U.(M " U.\R"
a) Without dividend tax = Kp =

XYZ"
^ $^S "
b) With dividend tax = Kp =
#
U.(M " U.\R"

COST OF TERM LOAN

24) Kt = R (1-t)

COST OF EQUITY

^+
EWM H! PM
25) Dividend Capitalisation Approach= Ke =

Where, D1 =Dividend/Share
26) Dividend Capitalisation + Growth Rate Approach =
^+
+ 
EWM H! PM
Ke =

Where,  = Growth rate

27) Capital Asset Pricing Model or Security Market Line:

Ke = Rf + (Rm - Rf)
Where, Rf = Risk free rate of return.
Rm = market return of portfolio
= 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:
`+
EWM H! PM
Ke =

Where, E1 = Expected Earnings/Share

PraveenKumar Keskar 5
 30) Cost of Retained Earnings: Kr = Ke

CAPITAL STRUCTURE

NET INCOME APPROACH

^ `
31) WACC = /^ `
2 a< + /^ `
2 a;
@39;!;A9
bc
32) D=

Pd@$@39;!;A9
be
33) E=

NET OPERATING INCOME APPROACH

^
K g = ad aH a< " "
`
34)

Pd@
bh
35) V=

PraveenKumar Keskar 6