CORPORATE FINANCE FORMULAS
EXAM QUESTIONS WITH VERIFIED
ANSWERS LATEST UPDATE
ACCCOUNTING!!
Present Value = (CORRECT ANSWERS) Cash Flow/ (1+r)ⁿ = Discount
Factor × Cash Flow
where discount factor= 1/1+r
Rate of return r (CORRECT ANSWERS) Profit/Investment
(aka discount rate, hurdle rate, opportunity cost of capital)
Return foregone by investors by investing in the project rather than other
investments of equivalent risk (e.g., financial markets)
Net Present Value = (CORRECT ANSWERS) Present Value -
Investment
C₀ + C₁/(1+r) = C₀ + 1/1+r × C₁,
where C₀ is investment and so negative
Net present value NPV rule for capital investment (CORRECT
ANSWERS) accept investments that have positive net present values
Rate of return IRR rule of capital investment (CORRECT ANSWERS)
accept investments that offer rates of return in excess of their
, opportunity cost of capital. IRR exceeds the discount rate whenever the
NPV is positive.
DCF formula (CORRECT ANSWERS) PV equals a sum of present
values of future cash flows
PV= C₁/(1+r) + C₂/(1+r)² + C₃/(1+r)³.... PV= ∑C/(1+r)ⁿ
PV of perpetuity (CORRECT ANSWERS) PV=C/r
not to be confused with PV of a single payment PV=C/(1+r)
Discount factor (CORRECT ANSWERS) 1/(1+r)ⁿ, where n refers to the
number of years from now
Rate of return on a perpetuity (CORRECT ANSWERS)
Payment/Present Value
r=C/PV
PV of ordinary annuity for t years (CORRECT ANSWERS) PV
(perpetuity A) - PV (perpetuity B) = C/r - C/(r(1+r)ⁿ)
the difference in the PVs of a perpetuity now (1st payment at the end of
this year) and PV of another perpetuity with first payments at the end of
t years
EXAM QUESTIONS WITH VERIFIED
ANSWERS LATEST UPDATE
ACCCOUNTING!!
Present Value = (CORRECT ANSWERS) Cash Flow/ (1+r)ⁿ = Discount
Factor × Cash Flow
where discount factor= 1/1+r
Rate of return r (CORRECT ANSWERS) Profit/Investment
(aka discount rate, hurdle rate, opportunity cost of capital)
Return foregone by investors by investing in the project rather than other
investments of equivalent risk (e.g., financial markets)
Net Present Value = (CORRECT ANSWERS) Present Value -
Investment
C₀ + C₁/(1+r) = C₀ + 1/1+r × C₁,
where C₀ is investment and so negative
Net present value NPV rule for capital investment (CORRECT
ANSWERS) accept investments that have positive net present values
Rate of return IRR rule of capital investment (CORRECT ANSWERS)
accept investments that offer rates of return in excess of their
, opportunity cost of capital. IRR exceeds the discount rate whenever the
NPV is positive.
DCF formula (CORRECT ANSWERS) PV equals a sum of present
values of future cash flows
PV= C₁/(1+r) + C₂/(1+r)² + C₃/(1+r)³.... PV= ∑C/(1+r)ⁿ
PV of perpetuity (CORRECT ANSWERS) PV=C/r
not to be confused with PV of a single payment PV=C/(1+r)
Discount factor (CORRECT ANSWERS) 1/(1+r)ⁿ, where n refers to the
number of years from now
Rate of return on a perpetuity (CORRECT ANSWERS)
Payment/Present Value
r=C/PV
PV of ordinary annuity for t years (CORRECT ANSWERS) PV
(perpetuity A) - PV (perpetuity B) = C/r - C/(r(1+r)ⁿ)
the difference in the PVs of a perpetuity now (1st payment at the end of
this year) and PV of another perpetuity with first payments at the end of
t years
