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FREQUENTLY USED SYMBOLS Term for book Definition

ACP Average collection period ADR American Depository Receipt AFN Additional funds needed APR Annual percentage rate

AR Accounts receivable b Beta coefficient in the CAPM

bL Levered beta bU Unlevered beta

BEP Basic earning power BVPS Book value per share

CAPM Capital Asset Pricing Model CCC Cash conversion cycle

CF Cash flow; CFt is the cash flow in Period t CFPS Cash flow per share

COGS Cost of goods sold COViM Covariance between stock i and the market

CR (1) Capital requirement ratio (2) Conversion ratio

CV Coefficient of variation D/E Debt-to-equity ratio

Δ Difference, or change (uppercase delta) di Input to the Black-Scholes option pricing model

Dps Dividend of preferred stock Dt Dividend of common stock in Period t

DCF Discounted cash flow DPS Dividends per share

DRIP Dividend reinvestment plan DRP Default risk premium DSO Days sales outstanding EAR Effective annual rate, EFF%

EBIT Earnings before interest and taxes; net operating income EBITDA Earnings before interest, taxes, depreciation, and amortization

EFF% Effective annual rate, EAR EPS Earnings per share

EVA Economic Value Added F (1) Flotation cost percentage

(2) Fixed operating costs FCF Free cash flow

FVAN Future value of an annuity for N years FVN Future value for Year N

g Growth rate in earnings, dividends, and stock prices gL Constant long-term growth rate in earnings, dividends, and stock prices

HVT Horizon value of stock or company at time T I Interest rate; also denoted by r

I/YR Interest rate key on some calculators INT Interest payment in dollars

IP Inflation premium IPO Initial public offering IRR Internal rate of return

LP Liquidity premium M/B Market-to-book ratio

M (1) Number of periods per year (2) Maturity value of a bond (3) Margin (profit margin)

MIRR Modified Internal Rate of Return MRP Maturity risk premium MVA Market Value Added

n Number of shares outstanding N Calculator key denoting number of periods

N di Area under a standard normal distribution to the left of di NOPAT Net operating profit after taxes NOWC Net operating working capital

NPV Net present value OP Operating profitability ratio

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P/E Price/earnings ratio P (1) Stock price; price in Period t Pt; current price P0

(2) Sales price per unit of product sold Pc Conversion price P^ 0 Expected stock price as PV of expected dividends Pf Price of good in foreign country Ph Price of good in home country PI Profitability index

PN A stock’s horizon value PM Profit margin

PMT Payment of an annuity PPP Purchasing power parity PV Present value

PVAN Present value of an annuity for N years Q Quantity produced or sold

QBE Breakeven quantity r (1) Percentage interest rate

(2) Required rate of return r− “r bar,” actual rate of return

r* Real risk-free rate of return r̂ “r hat,” expected rate of return

rd Required return on debt re Cost of new common stock including flotation costs rf Interest rate in foreign country rh Interest rate in home country ri Required return for an individual firm or security

rM Required return for “the market” or for an “average” stock rNOM Nominal rate of interest; also denoted by INOM

rp Required return on portfolio rps Required return on preferred stock

rPER Periodic rate of return rRF Rate of return on a risk-free security

rs Required return on common stock r−SMB Return on Fama-French small (size) minus big (size) portfolio r−HML Return on Fama-French high (B/M) minus big (B/M) portfolio

ρ Correlation coefficient (lowercase rho) R Estimated correlation coefficient for sample data

ROA Return on assets ROE Return on equity

ROIC Return on invested capital RPi Risk premium for Stock i

RPM Market risk premium RR Retention rate

S (1) Sales (2) Estimated standard deviation for sample data (3) Intrinsic value of stock (i.e., all common equity)

Σ Summation sign (uppercase sigma) σ Standard deviation (lowercase sigma)

σ2 Variance SML Security Market Line

t Time period T Marginal income tax rate

TIE Times interest earned TVN A stock’s horizon, or terminal, value

V Variable cost per unit VB Bond value VC Total variable costs VL Total market value of a levered firm

Vop Value of operations Vps Value of preferred stock VU Total market value of an unlevered firm

w Proportion or weight wd Weight of debt

wps Weight of preferred stock ws Weight of common stock

WACC Weighted average cost of capital X Exercise price of option

YTC Yield to call YTM Yield to maturity

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Corporate Finance A Focused Approach

6e

Australia • Brazil • Mexico • Singapore • United Kingdom • United States

E U G E N E F . B R I G H A M University of Florida

M I C H A E L C . E H R H A R D T University of Tennessee

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Corporate Finance: A Focused Approach, Sixth Edition Michael C. Ehrhardt and Eugene F. Brigham

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