Note: unless otherwise stated, you should always assume that cash flows are end-of-period and interest rates are discrete.

Consider a regular series of payments, where the quantity of the initial payment A changes by a fixed ratio g every time. (g may be greater or less than 1.) The present worth of this series can be calculated from the following formula:

P=A(1-(1+g)^N(1+i)^-N)/(i-g) (if i is not equal to g)

P=AN(1+i)^-1 (if i=g)

To convert a nominal interest rate of r, continuously compounded, to an effective interest rate i, use

i=e^r-1

Suppose we have a machine that we purchase for a given cost P, and which we expect to sell after N years for a salvage cost S. The equivalent annual cost is conventionally referred to as capital recovery, and can be calculated from

CR=P(A/P,i,N) - S(A/F,i,N)

If you have a continuous cash flow, continuously compounded, there is only one formula that can be used for calculating interest, the funds flow conversion formula.

This formula gives the amount A you'll have in the bank at the end of the year, given that the bank continuously compounds at a nominal rate of r% per year, and that the total amount you pay into the bank over the year in regular installments is A bar.

A = A bar ((e^r-1)/r)

This is the formula used to generate Appendix C in the text book.

Weighted cost of capital:

WCC = Sum(X_iA_i) / Sum X_i

Book value of an asset under declining-balance depreciation:

BV_n = P(1 - depreciation rate)ⁿ

Capital cost tax factor:

CCTF=1-(1+0.5i)/(1+i)*td/(i+d)

where i is the interest rate, d is the depreciation rate, and t is the rate of taxation.