Flashcards in Chapter 4 - Investment Appraisal Deck (44)

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1

## Interest rate investor demands

### Risk free rate + Inflation premium + default risk + liquidity premium + maturity premium

2

## Future Value

### Present Value * (1+R)n

3

## Present Value

### Future Value/ (1+R)n

4

## Future Value - Continuous Compounding

### PeRT: Present^e(decimalised interest rate * years)

5

## Present Value - Continuous Compounding

### Future^e-(decimalised interest rate * years)

6

## APR

### (1+ (nominal/number of payments))^n -1

7

## AER - more than one compounding period per year

### (1+ (nominal/number of payments))^n -1

8

## AER - less than one compounding period per year

### (1+ (periodic rate)^(1-number of years))-1

9

## Net present value

###
NPV = 0

NPV = Present value of inflows - present value of outflows

10

## Approximate IRR

### 2/3 * (profit from project/initial outlay)

11

## Gordons Growth Model

###
Discounted Cash Flows

(Present Div * (1+rate of growth))/(investors required rate - dividend growth rate)

12

## Standard Deviation

###
σ = (Σ(X-X̄)^2)/n

Sigma when whole data set

Sample when sample: divide by n-1

13

## Stats mode on calculator

### MODE 2 then 1

14

## Mean of table on calculator

### SHIFT 1, 4, 2

15

## Standard deviation on calculator - sigma

### SHIFT 1, 4, 3

16

## Standard deviation on calculator - sample

### SHIFT 1, 4, 4

17

## Information Ratio

###
Information Ratio = Extra Return/Extra RIsk

Information ratio = alpha/ standard deviation of excess return

The higher the information ratio the better

18

## Gross Profit Margin

### (Gross profit/Revenue) *100

19

## Operating Profit Margin

### (Operating Profit/Revenue) * 100

20

## Gross Profit

### = Revenue - Cost of sales

21

## ROCE

###
= (Operating Profit/Capital Employed) * 100

or operating profit margin * asset turnover

Capital employed= Total Assets - Current Liabilities

22

## Asset Turnover

### = Revenue / Capital Employed

23

## Operational Gearing Ratio

### = ((Revenue-variable costs) /Profit)*100

24

## Current Ratio

###
= Current Assets/ Current Liabilities

eg.

Short term assets/Short term liabilities

25

## Quick Ratio

### = (Current Asset - Inventory)/Current Liabilities

26

## Inventory Turnover

### = Cost of Goods sold/ Inventory

27

## Inventory Days

### = (Inventory/ Cost of goods sold)*365

28

## Receivables Collection Preiod

### = (Trade Receivables/revenue)*365

29

## Debt to Equity

### = ((Interest bearing debt + preference share capital)/Equity share holder funds)*100

30