The document summarizes key concepts from chapters 6-14 of a finance textbook relating to risk and return, time value of money, bonds, stock valuation, cost of capital, capital budgeting, and cash flow estimation. It defines terms like expected rate of return, risk measures like standard deviation and beta, bond and stock valuation methods, weighted average cost of capital (WACC), net present value (NPV), internal rate of return (IRR), modified IRR, payback period, and cash flow items like net operating working capital, operating cash flow, and free cash flow. Formulas and calculator instructions are provided for computing many of these concepts.

1. BA 640 Formula Chapter 6 Risk and Return
1) Rate of return = Amount received - Amount invested
Amount invested
n
k = ∑ k i Pi
ˆ
2) Expected rate of return Pi = Probability , ki = Rate of return
i =1
Calculator 1) Selecting Mode LR : MODE 5
2) Clear Data : CST EXE AC
3) Insert return before : -22 ALFHA Nj 0.1 MAR …… SHIFT 1 EXE
; DT x
∑ (k )P
n 2
= −k
ˆ
σ = Variance = σ
2
3) Risk or Standard deviation i i
i =1
Calculator 1) Insert return before : -22 ALFHA Nj 0.1 MAR …… SHIFT 2 EXE
; DT xσ n
CV = Risk / Return = σ/x
4) Coefficient of variation
5) Beta coefficient ( β ) Calculator insert Mkt. before : 25.7 ALFHA CFj 40 MAR …… SHIFT 8 EXE
β
, DT
6) Correlation ( r ) Calculator insert Mkt. before : 25.7 ALFHA CFj 40 MAR …… SHIFT 9 EXE
( -1 < r < 1 ) , DT r
∑ (k )P
n 2
n
= − kp
ˆ
∑ wi kˆi σp
ˆ
7) Expected return on a portfolio k p = , Risk on a portfolio pi i
i =1
i =1
8) Security Market Line (SML) : ki = kRF + (RPM)bi
Required return = Risk-free return + Premium for risk
Required return on stock i = Risk-free rate of return + (Market risk premium)(Stock i ‘ s beta)
Chapter 9 Bonds and Their Valuation
CF
CF CF
+ + .....+ n
1 2
(1+ k) (1+ k) (1+ k)n
1) PV = Calculator 1) Selecting Mode FIN : MODE 4
1 2
SHIFT AC EXE AC
2) Clear Data :
3) PV = 10 n 10 i% 100 PMT 1000 FV COMP PV EXE
2) Yield to maturity (YTM) or kd = 10 n -887 PV 90 PMT 1000 FV COMP i% EXE
Chapter 10 Stock and Their Valuation
D1 D2 D3 D∞
P=
+ + +. . . +
ˆ
(1+ ks )1 (1+ ks )2 (1+ ks )3 (1+ ks )∞
1) Stock Value = PV of Dividends 0
ˆ D (1 + g ) = D1
P0 = 0 D1
3) k s = +g
ˆ
ks − g ks − g
2) If g is constant, then
P0
= Actual dividend yield + Actual capital gains yield
3) k s
D D ps
V ps = k ps =
ps
or
4)
V ps
k ps
kS = kRF + (kM - kRF) bFirm
5) Use the SML to calculate kS ;
1) After-tax component cost of debt = kd ( 1-T )
Chapter 11 The cost of Capital
D
=
ps
2) The cost of preferred stock k
;
ps
Pn

2. WACC = wdkd (1-T) + wpskps + wceks
3) Weighted Average Cost of Capital (WACC) ;
ˆ
ks = k s = kRF + RP = D1 / P0 + expected g
4)
5) ks = Bond yield + Risk premium
6) g = (Retention rate)(ROE) = (1.0 – Payout rate)(ROE) = b(ROE)
Chapter 13 The Basics of Capital Budgeting : Evaluating Cash Flows
1) Payback period = Year before full recovery + Unrecovered cost at start of year
Cash flow during year
2) Net Present Value (NPV) : Sum of PVs of inflows and Outflows = PV inflow – PV outflow
n n
CFt
CF t
∑ NPV = ∑
= − CF0
NPV
(1 + k )t (1 + k )t
or
t=0 t =1
Calculator -100 CFj 10 CFj 60 CFj 80 10 i% COMP NPV EXE
n
CF t
∑ (1 +
IRR = =0
)t
3) Internal Rate of Return (IRR) : NPV =0 ;
IRR
t=0
Calculator -100 CFj 10 CFj 60 CFj 80 10 i% COMP IRR EXE
TV
4) Modify Internal rate of return (MIRR) : PV costs = PV terminal value : PV costs =
(1 + MIRR ) n
Chapter 8 Time Value of Money
FVn = PV (1 + i )
n
⎛1⎞
n FV
⎜ ⎟
n
or PV = = FV
1)
(1 + i )n n
⎝1+ i⎠
mn
⎛ ⎞
mn
⎛ ⎞
i i
= PV ⎜ 1 + Nom ⎟ = ⎜ 1 + Nom ⎟ − 1 .0
FV or Effective annual rate
2) n
⎝ m⎠
⎝ m⎠
Chapter 14 Cash Flow Estimate and Risk Analysis
1) Net Proceeds from sales (NP) = MV + Tax ; MV = Market value
= MV + Tax rate ( MV-BV) ; BV = Book value
2) Net operating working capital (NOWC) = All current assets that _ All current liabilities that
do not pay interest do not pay interest
= Operating current assets – operating current liabilities
3) Operating capital = (Net operating working capital) – (Net plant and equipment)
4) NOPAT = Net operating profit after taxes = EBIT(1-Tax rate)
5) Operating cash flow (OCF) = NOPAT + Depreciation = EBIT(1-Tax) + Depreciation
= (Sales – CGS – Operating Expense – depreciation)(1-Tax) + Depreciation
= (Sales – CGS – Operating Expense)(1-Tax) + (Depreciation x Tax)
6) Free cash flow (FCF) = Operating cash flow - Gross investment in operating capital
= NOPAT – Net investment in operating capital
7) Free cash flow (FCF) = EBIT(1-Tax) + Depreciation + ∆NWC + ∆CAPEX
8) EBIT = Sales – CGS – Operating Expense – depreciation
= Sales – Variable Cost – Fixed Cost