Fundamentals of Financial Management (Concise 6th Edition)

Appendix C Selected Equations and Tables A-31

After-tax cost of debt! Interest rate on new debt – Tax savings
! rd – rdT
! rd(1 – T)

Component cost of preferred stock! rp!

Dp

___P

p

Required rate of return! Expected rate of return
rs! rRF " RP! D 1 /P 0 " g! #rs

rs! rRF " (RPM)bi
! rRF " (rM – rRF)bi

Pˆ 0!

D 1

_______(1 " r

s)

1 "^

D 2

_______(1 " r

s)

2 "^...^ "^

D%

_______(1 " r

s)

%^

! (^)!
t! 1
%
Dt
__(1 " r
s)
t^
Pˆ 0!
D 1
r
s^ # g
rs! #rs!
D 1
P
0
" Expected g
Cost of equity from new stock! re!
D 1
__P
0 (1 # F)
" g
Retained earnings
breakpoint
!
Addition to retained earnings for the year

Equity fraction
Chapter 11
NPV! CF 0 "
CF 1
(1 " r) 1 "
CF 2
(1 " r)^2 "^...^ "^
CFN

(1 " r)N
! (^)!
t! 0
N
CFt
__(1 " r) (^) t
CF 0 "
CF 1
(1 " IRR) 1 "
CF 2
(1 " IRR)^2 "^...^ "^
CFN

(1 " IRR)N
! 0
(^)!
t! 0
N
CFt
____(1 " IRR) (^) t! 0
(^)!
t! 0
N
COFt
__(1 " r) (^) t!
(^)!
t! 0
N
CIFt(1 " r)N#t

(1 " MIRR)N
PV costs! ___TV
(1 " MIRR)N
Payback! Number of years prior to full recovery
"
Unrecovered cost at start of year

Cash ) ow during full recovery year
Chapter 13
EBIT! PQ – VQ – F! 0
QBE! _____P #F (^) V
bL! bU[1 " (1 # T)(D/E)]
bU! bL/[1 " (1 # T)(D/E)]