Page 8 - FM Integrated WorkBook STUDENT 2018-19

Financial Management

FORMULAE AND TABLES

Economic order quantity

2C D
= o
C H

Miller-Orr Model
1
Return point = Lower limit + ( × spread)
3

3 × transaction cost × variance of cashflows 1
Spread = 3 4 3
interest rate

The Capital Asset Pricing Model
E(r ) = R + β (E(r ) – R )
m
f
f
i
i
The asset beta formula
V e V (1 – T)
d
β = (V + V (1 – T)) β + V + V (1 – T)) β
a
d
e
e
d
d
e
The Growth Model
D (1 + g) D (1 + g)
0
0
P 0 (r – g) r e (P ) + g
0
e
Gordon’s growth approximation
g = br
e
The weighted average cost of capital

V e V d
WACC = K + K (1 – T)
d
e
(V + V ) V + V d
e
e
d
The Fisher formula
(1 + i) = (1 + r)(1 + h)

Purchasing power parity and interest rate parity

(1+ h ) (1 + i )
c
c
S = S × (1+ h ) F = S × (1 + i )
0
0
1
0
b
b
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