This document provides equations and concepts related to short-term finance, cash and liquidity management, credit and inventory management, international corporate finance, leasing, mergers and acquisitions, risk management, and options. Key equations include those for operating cycle, cash cycle, economic order quantity, net advantage to leasing, Black-Scholes option pricing model, and incremental cash flow from a synergistic merger. The document covers various lessons from corporate finance textbooks.

1. FNCE 371
Equation Sheet
Lesson 1 (Chapter 18): Short-term Finance and Planning
Operating Cycle:
Operating Cycle = Inventory period + Accounts receivable period
Inventory period = 365 days / Inventory Turnover
Inventory Turnover = Cost of goods sold / Average Inventory
Accounts receivable period = 365 days / Accounts receivable Turnover
Accounts receivable Turnover = Credit sales / Average Accounts receivable
Cash Cycle:
Cash Cycle = Operating Cycle – Accounts payable period
Accounts payable period = 365 days / Accounts payable Turnover
Accounts payable Turnover = Cost of goods sold / Average Accounts payable
Lesson 2 (Chapter 19): Cash and Liquidity Management
Float (Disbursement, Collection, and Net):
Float = Available Balance – Book Balance
Net Float = Disbursement Float – Collection Float

2. Lesson 3 (Chapter 20): Credit and Inventory Management
Accounts Receivable:
Accounts Receivable = Average sales per day x Accounts Receivable Period
NPV of Change in Credit Policy (Onetime Sale):
NPV = –v + (1 – )P’ / (1 + R)
where
v = Variable cost per unit
= Probability that a credit customer will default
P’ = Price per unit including cash discount
R = Required return on receivables
NPV of Change in Credit Policy (Repeat Business):
NPV = –v + (1 – )(P’ – v) / R
Z-Score:
Z = 0.4 x [Sales / Total assets] + 3.0 x EBIT/Total assets
Carrying Costs:
Total carrying costs = Average inventory x Carrying costs per unit
= (Q/2) x CC
where
Q = quantity of inventory ordered each time
CC = carrying cost per unit per year
Restocking Costs:
Total restocking costs = Fixed cost per order x Number of orders
= F x (T/Q)
where
F = fixed cost per order
T = total unit sales per year
Total Costs of Holding Inventory:
Total costs = Carrying costs + Restocking costs
= [(Q/2) x CC] + [F x (T/Q)]
Economic Order Quantity (EOQ):
EOQ = Q* =

3. Lesson 4 (Chapter 21): International Corporate Finance
Single Period Relative Purchasing Power Parity (PPP):
E[S1] = S0 x [1 + (hFC – hDOM)]
where
E[S1] = Expected exchange rate in 1 period
S0 = Current (Time 0) spot exchange rate (foreign currency per unit of domestic currency)
hFC = Inflation rate in foreign country
hDOM = Domestic inflation rate
Multi-period Relative Purchasing Power Parity (PPP):
E[St] = S0 x [1 + (hFC – hDOM)]t
where
E[St] = Expected exchange rate in t periods
Single Period Interest Rate Parity (IRP):
F1 / S0 = (1 + RFC) / (1 + RDOM)
where
F1 = Forward exchange rate for settlement at time 1
S0 = Spot exchange rate at Time 0 (foreign currency per unit of domestic currency)
RFC = Nominal risk-free interest rate in foreign country
RDOM = Domestic risk-free interest rate
Approximate Multi-Period Interest Rate Parity (IRP):
Ft = S0 x [1 + (RFC – RDOM)]t
where
Ft = Forward exchange rate for settlement at time t
Approximate Uncovered Interest Parity (UIP):
E[St] = S0 x [1 + (RFC – RDOM)]t
Approximate International Fisher Effect (IFE):
RDOM – hDOM = RFC – hFC

4. Lesson 5 (Chapter 22): Leasing
Net Advantage to Leasing (NAL):
NAL = Investment – PV(after-tax lease payments) – PV(CCATS)
=
where
I = Investment
N = Length of project life
L = Before-tax lease payment
T = Marginal corporate tax rate
i = After-tax Borrowing rate
d = CCA rate
S = Salvage value
Lesson 6 (Chapter 23): Mergers and Acquisitions
Incremental Cash Flow ( CF) from Synergistic Merger:
CF = EBIT + Depreciation – Tax – Capital requirements
= Revenue – Cost – Tax – Capital requirements
Lesson 7 (Chapter 24): Risk Management (An Introduction to Financial
Engineering)
There are no equations provided for Lesson 7.
Lesson 8 (Chapter 25): Options and Corporate Securities
Black-Scholes Option Pricing Model:
Call Option Price:
C0 = {S0 x N(d1)} – {[E / (1 + Rf)t
] x N(d2)}
where
C0 = Call option price at Time 0
S0 = Stock price at Time 0
d1 = [ln(S0 / E) + (Rf + ½ 2
) x t] / [ x t]
d2 = d1 – ( x t)
N(d) = Probability of d based on a Normal Distribution
E = Exercise price of the call option
Rf = Risk-free rate
t = time to expiration of the call option
Put Option Price:
P0 = {[E / (1 + Rf)t
] x N(–d2)} – {S0 x N(–d1)}
where
P0 = Put option price at Time 0