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Financial Management Exam: Formulae & Discount Tables for ICAEW Pro Level, Schemes and Mind Maps of Financial Management

Bournemouth University (BU)Financial Management

The formulae and discount tables required for the financial management exam of the icaew professional level. It includes annuity formulae, dividend growth model, capital asset pricing model, and beta calculation formulae. Additionally, it provides discount tables for various interest rates to calculate present values of cash flows.

What you will learn

  • What is the formula for calculating the present value of an annuity?
  • How do you calculate the cost of equity using the dividend growth model?

Typology: Schemes and Mind Maps

2021/2022

Uploaded on 09/12/2022

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ICAEW\2017
PROFESSIONAL LEVEL EXAMINATION
FINANCIAL MANAGEMENT
FORMULAE AND DISCOUNT TABLES
Formulae you may require:
a. Discounting an annuity
The annuity factor: AF1โ†’n =
๏ƒบ
๏ƒป
๏ƒน
๏ƒช
๏ƒซ
๏ƒฉ
๏€ซ
๏€ญn
r
r)1(
1
1
1
where AF = annuity factor
n = number of payments
r = discount rate as a decimal
b. Dividend growth model:
g +
P
g) + (1
D
=
ko
o
e
where ke = cost of equity
Do = current dividend per ordinary share
g = the annual dividend growth rate
Po = the current ex-div price per ordinary share
c. Capital asset pricing model: rj = rf + รŸj (rm โ€“ rf)
where rj = the expected return from security j
rf = the risk free rate
รŸj = the beta of security j
rm = the expected return on the market portfolio
d. ๏ขe = ๏ขa ( 1 +
E
T)D( ๏€ญ1
)
where ๏ขe = beta of equity in a geared firm
๏ขa = ungeared (asset) beta
D = market value of debt
E = market value of equity
T = corporation tax rate
NOTE: Candidates may use other versions of these formulae but should then define the
symbols they use.
pf2

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ICAEW\

PROFESSIONAL LEVEL EXAMINATION

FINANCIAL MANAGEMENT

FORMULAE AND DISCOUNT TABLES

Formulae you may require:

a. Discounting an annuity

The annuity factor: AF 1 โ†’n = ๏ƒบ ๏ƒป

n r ( 1 r )

where AF = annuity factor

n = number of payments

r = discount rate as a decimal

b. Dividend growth model: +g P

D(1+g) k = o

o e

where ke = cost of equity Do = current dividend per ordinary share

g = the annual dividend growth rate

Po = the current ex-div price per ordinary share

c. Capital asset pricing model: rj = rf + รŸj (rm โ€“ rf)

where rj = the expected return from security j rf = the risk free rate

รŸj = the beta of security j

rm = the expected return on the market portfolio

d. ๏ขe = ๏ขa ( 1 + E

D( 1 ๏€ญT)

where ๏ขe = beta of equity in a geared firm

๏ขa = ungeared (asset) beta D = market value of debt

E = market value of equity

T = corporation tax rate

NOTE: Candidates may use other versions of these formulae but should then define the

symbols they use.

โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“

DISCOUNT TABLES

โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“ Interest Number of Present value of Present value of rate years ยฃ1 receivable at ยฃ1 receivable at p.a. n the end of n years the end of each of n years

  • 1% 1 0.990 0. โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“ - 2 0.980 1. - 3 0.971 2. - 4 0.961 3. - 5 0.951 4. - 6 0.942 5. - 7 0.933 6. - 8 0.923 7. - 9 0.914 8.
    • 10 0.905 9.
  • 5% 1 0.952 0. โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“ - 2 0.907 1. - 3 0.864 2. - 4 0.823 3. - 5 0.784 4. - 6 0.746 5. - 7 0.711 5. - 8 0.677 6. - 9 0.645 7.
    • 10 0.614 7.
  • 10% 1 0.909 0. โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“ - 2 0.826 1. - 3 0.751 2. - 4 0.683 3. - 5 0.621 3. - 6 0.564 4. - 7 0.513 4. - 8 0.467 5. - 9 0.424 5. - 10 0.386 6.
  • 15% 1 0.870 0. โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“ - 2 0.756 1. - 3 0.658 2. - 4 0.572 2. - 5 0.497 3. - 6 0.432 3. - 7 0.376 4. - 8 0.327 4. - 9 0.284 4. - 10 0.247 5.
  • 20% 1 0.833 0. โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“โ€“ - 2 0.694 1. - 3 0.579 2. - 4 0.482 2. - 5 0.402 2. - 6 0.335 3. - 7 0.279 3. - 8 0.233 3. - 9 0.194 4. - 10 0.162 4.