Com 88 corporate finance overview of formulas 11

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Unformatted text preview: uct an option equivalent of the underlying asset and a bank loan. Real options are often complex and have lack of a formal structure, which makes it difficult to estimate cash flows. In addition, competitors might have real options as well that needs to be taken into account when the economic rent of the project is assessed. Download free ebooks at bookboon.com 88 Corporate Finance Overview of formulas 11. Appendix: Overview of formulas Present value (PV) of single cash flow (1) PV = discount factor ˜ Ct Discount factor (DF) (2) DF = 1 (1  r ) t Present value formula for single cash flow (3) PV = Ct (1  r) t Future value formula for single cash flow (4) FV C 0 ˜ (1  r ) t Present value formula for multiple cash flow (5) PV C3 C1 C2    .... 1 2 (1  r ) (1  r ) (1  r ) 3 Ct ¦ (1  r ) t Net present value Ci i 1 (1  r ) n (6) NPV = C 0  ¦ i Present value of a perpetuity (7) PV of perpetuity C r Present value of a perpetuity with constant growth g (8) PV of growing perpetituity C1 rg Present value of annuity (9) PV of annuity ª1 1º C«  t»  r ¬ r r 1 ¼ Annuity factor Real interest rate formula (10) 1  real interest rate = 1+ nominal interest rate 1+ inflation rate Download free ebooks at bookboon.com 89 Corporate Finance Overview of formulas Present value of bonds (11) Value of bond = PV(cash flows) = PV(coupons) + PV(par value) Present value of coupon payments (12) PV(coupons) = coupon · annuity factor Expected return on bonds (13) Rate of return on...
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