CA Final AFM Last Day Revision Notes by CA Rohit Chipper AIR 17

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 CA Final AFM Last Day Revision Notes by CA Rohit Chipper AIR 17

Index - Last Day Revision Notes

Page
Sr. No. Topic
No.
1 Exam Strategy (How to attempt AFM paper in 3 hours of exam?) 3

2 Detailed Strategy (How to study AFM subject?) 4

3 1.5 Day Planner (How to plan AFM in exam leaves of 1.5 day?) 6

4 Important Question List as per latest study material for May 2025 8

5 ABC & Trend Analysis 12

6 All Formulas (Chapter wise) 13

Chapter 1: Financial Policy and Corporate Strategy NA

Chapter 2: Risk Management 14

Chapter 3: Advanced Capital Budgeting Decisions 14

Chapter 4: Security Analysis 16

Chapter 5: Security Valuation 17

Chapter 6: Portfolio Management 22

Chapter 7: Securitization NA

Chapter 8: Mutual Funds 25

Chapter 9: Derivatives Analysis and Valuation 26

Chapter 10: Foreign Exchange Exposure & Risk Management 28

Chapter 11: International Financial Management 29

Chapter 12: Interest Rate Risk Management 30

Chapter 13: Business Valuation 31

Chapter 14: Mergers, Acquisitions & Corporate Restructuring 34

Chapter 15: Startup Finance NA

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 CA Final AFM Last Day Revision Notes by CA Rohit Chipper AIR 17

CA Final AFM Exam Strategy

Time Management: The AFM paper is generally short. If you are well-prepared, you
should be able to complete it in 2 to 2.5 hours. If you attempt all 6 questions, your score
will be based on the best 5.
MCQs and Descriptive Questions: The MCQ paper will not be provided during the
reading time, so focus on the descriptive questions first. Plan to attempt your best 3
descriptive answers within the first 1.5 hours. After that, move on to the MCQs (attempt
all, as there is no negative marking). Finally, finish the remaining 2 descriptive
questions.
Theory Questions: Theory questions are highly scoring in AFM, usually worth 14 marks.
These questions often repeat from the study material or past year papers. They take
less time to answer, and you can earn full marks if you write the correct key points.
Formulas: No marks are awarded for simply writing formulas.
Question Selection: During reading time, identify the question you plan to leave. It’s
advisable to skip new, ambiguous, or confusing forex questions.
Reading Strategy: Avoid reading Question 1 during the reading time. Instead, read the
questions in reverse order, starting from Question 6 and moving to Question 2.
Answer Order: Start by answering the smaller questions first, as they are the most
scoring. Leave the larger questions for the end.
Answer Presentation: Leave proper space in your answer sheet to allow for any changes
later. Write your answers according to the ICAI format. Circle important calculations
and answers for emphasis.
Corrections: Don’t fully cut out any answer until you have solved it correctly again—a
simple cross is enough to indicate a correction.
Page Usage: Start each new answer on a new page.
Writing Style: Marks are not awarded for writing style, so focus on content rather than
presentation. Avoid making lines, tables, or using multiple pens; use a single pen to
increase your speed.
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 CA Final AFM Last Day Revision Notes by CA Rohit Chipper AIR 17

CA Final AFM Detailed Strategy

By CA Rohit Chipper AIR 17
When to start AFM?
Start the AFM class 6 month after joining the articleship
Material to Refer
• Concept Notes
• Study Material
• Paste year paper (last 2 years)
• RTP (last 2 years)
• MTP (last 1 year)
Revisions
• First Reading – 10 Days
• 1st Revision – 6 Days
• 2nd Revision – 3 Days
• Smart Revision – 1.5 Days
Mock Test
Plan for at least 1 mock test and analyse it properly to decide your
• Strategy
• Time Management
• Qn sequence
• Strength & weakness areas
Mistake Register
Note down all your mistakes you have done during revision and revise them before
exam so, you don’t repeat them in exam.
Paper Pattern
Understand paper pattern – See past year paper to get understanding of format of
paper. Familiarize yourself so, in exam there is no panic
MCQ (30 Marks) + Practical (72 marks) + Theory (12 Marks) = 114 marks
• MCQ – 30 marks (15 Case scenario based MCQs × 2 Marks each)
• Descriptive – 84 Marks ( Attempt any 5 out of 6 Qns × 14 Marks each)

Q1 (a) + (b) + (c) 6+4+4

Q2 (a) + (b) + (c) 6+4+4
Q3 (a) + (b) 10 + 4
Q4 (a) + (b) + (c) 6+4+4
Q5 (a) + (b) 8+6
Q6 (a) + (b) 8+6
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 CA Final AFM Last Day Revision Notes by CA Rohit Chipper AIR 17

Tips To Remember During Revision

1. Follow ABC analysis for the revision sequence but don’t leave any chapter based on
ABC. Start with small & easy chapters of category A then move to difficult chapters.
2. Whenever you revise the subject, don’t solve all the questions from study material or
question bank. Follow below approach
• Cancel the same or similar question
• Cancel the easy question which you have solved correctly in first try without any
mistake
• Mark the important or difficult question where you made mistake for next
revision.
3. There is no need to solve all questions by hand during revision as it will consume lots
of time and you may not able to revise all the chapter instead follow below approach for
smart revision
• Read the question
• Think of the first step you will do to solve the question
• Calculate the values for the first step in calculator, (if question is small then
calculate the final answer directly on calculator)
• Match the answer of first stem with ICAI answer and
• Continue the process for next step and solve the entire question
This way you can solve question faster and you will know ICAI method as well since you
have verified the ICAI answer.
4. Note down all the mistakes you have done while solving question in a mistake
register and refer those mistakes next time before you star solving practical qns.
5. For writing practice,
• Do give 1 MTP and
• Refer the previous attempt papers and do solve some random Qns by hand
6. Refer the theory & important formulas from last day revision notes at the end of each
revision and do revise them on the exam day as these takes less time and gives you 12-
15 marks in exams.

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 CA Final AFM Last Day Revision Notes by CA Rohit Chipper AIR 17

CA Final AFM 1.5 Day Plan

Time Chapter Concept Question

Day 1 (FR Exam Day)
20:00 to 22:20 Portfolio Management 40 min 100 min
22:30 to 23:00 Security Analysis 10 min 20 min
23:00 to 23:45 Security Valuation 45 min Next day
00:00 Go to sleep
Day 2
06:30 to 07:30 Wake up and get ready
07:30 to 9:30 Security Valuation 120 min
10:00 to 11:30 Business Valuation 30 min 60 min
Mergers, Acquisitions and Corporate
11:30 to 14:00 40 min 100 min
Restructuring
14:00 to 14:30 Lunch
14:30 to 15:30 Mutual Funds 20 min 40 min
15:30 to 17:50 Advanced Capital Budgeting Decisions 40 min 100 min
18:00 to 18:45 International Financial Management 10 min 35 min
18:45 to 19:25 Derivatives Analysis and Valuation 40 min After lunch
19:30 to 20:00 Dinner
20:00 to 21:30 Derivatives Analysis and Valuation 90 min
21:30 to 22:15 Interest Rate Risk Management 15 min 30 min
Foreign Exchange Exposure and Risk
22:15 to 00:45 40 min 110 min
Management
00:45 Go to sleep
Day 3 (Exam Day)
07:00 to 08:00 Wake up and get ready
08:00 to 08:10 Risk Management (Var Concept) 5 min 5 min
08:10 to 11:30 AFM Theory 200 min
11:30 to 12:00 Refer any past year paper for practice 30 min
Revise all formulas from last day revision
11:30 to 12:20 20 min
notes
12:30 Leave for exam

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 CA Final AFM Last Day Revision Notes by CA Rohit Chipper AIR 17

Tips for last day revision

• Avoid New Topics or Books: Do not start any new topic or book that you haven’t
read before during 1.5 day revision.

• Get Sufficient Rest: Take 6-7 hours of sleep each night, and incorporate small
breaks (5-10 minutes) between study sessions.

• Avoid Exam Discussions: After each exam, avoid discussing the paper with
friends or watching solution videos on YouTube until all exams are finished.

• Rest After the Exam: Take a 30-40 minute nap when you get home after an exam.

• Do not practice question by writing: During the 1.5-day syllabus revision, avoid
solving questions by hand. Just solve them on calculator and verify the steps from
answers

• Focus on Key Questions: Only review selected questions in the 1.5-day revision.
Mark important or challenging parts in each question now, so you can focus only
on these key areas rather than the entire question.

• Don’t Skip Theory in AFM: Theory in Strategic Financial Management is crucial,

covering 12-15 marks, so make sure to review it.

• Revise Formulas Before the Exam: Go over all essential formulas just before
heading to the exam center.

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 CA Final AFM Last Day Revision Notes by CA Rohit Chipper AIR 17

AFM Important Question List

May Nov May Nov

65 23 23 24 24
70
60
60
50 43 44 44
38
40
28 26
30 24
20
20 12 12
10
0
From Our Important Qn list Other (Study Material) New Qns

Question Categories
• Most Imp.
• Very Imp.
• Important
Study Leave Plan:
• In-depth Reading:10-15 days
• First Revision: 5-7 days
• Second Revision: 4-6 days
• Third Revision: 3-5 days

Nov 2024 Paper Analysis

Nov 2024 Questions Page TYK No. Illustration No. Marks

SA.N24.Q1(a) 6.78 42 6
SA.N24.Q1(b) 9.41 5 4
SA.N24.Q1(c) Theory Book – Page 7 Q5 4
SA.N24.Q2(a) 8.26 14 6
SA.N24.Q2(b) New 8
SA.N24.Q3(a) 12.15 1 6
SA.N24.Q3(b) 10.66 51 8
SA.N24.Q4(a) 9.61 11 6
SA.N24.Q4(b) New 4
SA.N24.Q4(c) Theory Book – Page 46 Q16 4
SA.N24.Q4(c) or 12.16 5 4
SA.N24.Q5(a) New 6
SA.N24.Q5(b) 5.37 18 4
SA.N24.Q5(c) 9.60 10 4
SA.N24.Q6(a) New 8
SA.N24.Q6(b) 10.66 50 6
Total 88

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 CA Final AFM Last Day Revision Notes by CA Rohit Chipper AIR 17

May 2024 Paper Analysis

May 2024 Questions Page TYK No. Illustration No. Marks

SA.M24.Q1(a) 6.74 30 6
SA.M24.Q1(b) 8.25 12 4
SA.M24.Q1(c) From new topic added in May 2024 4
SA.M24.Q2(a) 4.34 1 6
SA.M24.Q2(b) 11.18 4 4
SA.M24.Q2(c) 8.22 6 4
SA.M24.Q3(a) 12.17 7 10
SA.M24.Q3(b) From new topic added in May 2024 4
SA.M24.Q4(a) 9.63 16 6
SA.M24.Q4(b) 14.31 2 4
SA.M24.Q4(c) From new topic added in May 2024 4
SA.M24.Q5(a) 6.66 7 8
SA.M24.Q5(b) 5.37 17 6
SA.M24.Q6(a) 3.50 26 8
SA.M24.Q6(b) 14.48 31 6
Total 84

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 CA Final AFM Last Day Revision Notes by CA Rohit Chipper AIR 17

Important Question List

ABC Chapter Importance Test your knowledge Illustration

Chapter 1: Financial Policy and

C Most Imp. Refer theory book 1
Corporate Strategy

C Chapter 2: Risk Management Very Imp. 1

Important 3
Chapter 3: Advanced Capital
A Very Imp. 5, 14(ii), 23 12
Budgeting Decisions
Most Imp. 7,9,21,22,25 2,11,13
B Chapter 4: Security Analysis Most Imp. 1,2
Important 5,16
A Chapter 5: Security Valuation Very Imp. 24
7, 10, 12, 14, 25, 27, 29,
Most Imp.
31
Important 24(c ),38,40 5
Chapter 6: Portfolio
A Very Imp. 2,15(iii),26,32,39
Management
Most Imp. 8,14(ii),22,31,34,35
A Chapter 7: Securitization Important Refer theory book
Important 1,2
B Chapter 8: Mutual Funds Very Imp. 3
Most Imp. 12,16,19,20,21
Important 3,11,12 2
Chapter 9: Derivatives Analysis
A Very Imp. 5
and Valuation
Most Imp. 4,8,14,22 3
Important 10,24
Chapter 10: Foreign Exchange Very Imp. 16,37,38,50, 51 9
A
Exposure and Risk Management
25, 33, 36, 39, 42, 43, 47,
Most Imp.
48, 49
Chapter 11: International Very Imp. 3
B
Financial Management Most Imp. 1,4 1,2,3
Important 4,7
Chapter 12: Interest Rate Risk
B Very Imp. 5,6
Management
Most Imp. 3
Important 9,11 1,2,4
B Chapter 13: Business Valuation Very Imp. 16 3,5
Most Imp. 3,7
Chapter 14: Mergers, Important 28(iii)
A Acquisitions and Corporate Very Imp. 20 1
Restructuring Most Imp. 14,15,22,29,30 4
A Chapter 15: Start-up Finance Most Imp. Refer theory book

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 CA Final AFM Last Day Revision Notes by CA Rohit Chipper AIR 17

Access all past year paper, RTPs and MTPs on this link > Google Drive Link

Particular Attempt Question

Nov-18 1(a), 5(a)

May-19 2(a), 6(b)

Nov-19 1(b)

Nov-20 1(c ), 2(a), 4(a), 6(a), 6(b)

Jan-21 1(a), 1(b), 2(b), 6(a)

Past year paper (Sugg. ans.)
May-22 1(c ), 6(c )

Nov-22 5(A), 6(A) (ii) & (iii)

May-23 5(A), 5(C ), 6(A)

Nov-23 2(A), 2(C ), 3(B)

Nov-24 2(B), 3(A ), 4(B), 5(A), 6(A)

May-19 7, 10, 11, 14(c ), 15(c )

Nov-19 1,2

May-20 5

Nov-20 6,10,12

May-21 5,14,15

RTPs Dec-21 2,10,11

May-22 1,14

Nov-22 All questions were repeated

May-23 All questions were repeated

Nov-23 All questions were repeated

May-24 4, 12, 13

Oct-18 2 (c )

Aug-18 1(c ), 4(d)

May-20 3(a)

MTPs Oct-20 1(c ), 2(c ), 4(c ), 5(a), 6(a), 6(b)

Apr-21 1(a), 1(c ), 2(b), 3(c ), 6(a)

Nov-21 3(a)

Apr 23 - II 2(a)

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 CA Final AFM Last Day Revision Notes by CA Rohit Chipper AIR 17

AFM ABC & Trend Analysis

May Nov May Nov Nov Jan Jul Dec May Nov May Nov May Nov
ABC Topic 18 18 19 19 20 21 21 21 22 22 23 23 24 24
Total Avg.

Chapter 1:
Financial Policy
C
and Corporate
4 4 4 4 4 8 4 4 4 4 40 3
Strategy
Chapter 2: Risk
C
Management
4 4 4 4 4 4 4 4 4 4 8 4 52 4
Chapter 3:
Advanced
A Capital New chapter added in May 2024 8 8 16 8
Budgeting
Decisions
Chapter 4:
B Security 8 8 4 8 4 8 4 6 50 4
Analysis
Chapter 5:
A Security 10 28 16 23 4 24 8 8 16 17 8 6 18 186 14
Valuation
Chapter 6:
A Portfolio 14 8 8 16 8 10 16 20 16 24 16 16 14 14 200 15
Management
Chapter 7:
A
Securitization
4 4 4 8 4 8 4 4 4 4 4 4 4 60 5

Chapter 8:
B
Mutual Funds
10 8 8 10 14 8 12 8 16 8 8 8 8 6 132 10
Chapter 9:
Derivatives
A
Analysis and
9 8 16 14 8 12 8 16 8 8 14 20 6 20 167 13
Valuation
Chapter 10:
Foreign
Exchange
B
Exposure and
8 4 8 8 12 4 8 12 6 16 8 94 7
Risk
Management
Chapter 11:
International
B
Financial
8 24 16 8 20 16 8 16 12 8 7 0 8 6 157 12
Management
Chapter 12:
Interest Rate
A
Risk
8 8 12 8 22 8 16 12 8 12 14 10 16 154 12
Management
Chapter 13:
B Business 13 12 8 8 4 8 8 8 8 8 8 4 97 7
Valuation
Chapter 14:
Mergers,
A Acquisitions 8 12 16 16 12 12 8 8 8 8 18 10 10 6 152 12
and Corporate
Restructuring
Chapter 15:
A
Startup Finance
4 4 4 8 7 8 8 8 4 8 8 8 4 4 87 6

*From Nov-24, ICAI has started releasing MCQs so, Nov-24 and onwards marks contains
both descriptive and MCQs.

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 CA Final AFM Last Day Revision Notes by CA Rohit Chipper AIR 17

AFM Important Formulas

This list covers all the formula and important calculation covered in AFM study
material, past year paper, RTP & MTP questions.
Do refer this formula on the day of exam so, that you don’t make any mistakes in
formula in exam. It will surely save you the 8-10 marks in exam by avoiding silly
mistakes in formula and calculations :)

Chapters Page No.

Chapter 1: Financial Policy and Corporate Strategy NA

Chapter 2: Risk Management 14

Chapter 3: Advanced Capital Budgeting Decisions 14

Chapter 4: Security Analysis 16

Chapter 5: Security Valuation 17

Chapter 6: Portfolio Management 22

Chapter 7: Securitization NA

Chapter 8: Mutual Funds 25

Chapter 9: Derivatives Analysis and Valuation 26

Chapter 10: Foreign Exchange Exposure and Risk Management 28

Chapter 11: International Financial Management 29

Chapter 12: Interest Rate Risk Management 30

Chapter 13: Business Valuation 31

Chapter 14: Mergers, Acquisitions and Corporate Restructuring 34

Chapter 15: Startup Finance NA

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Risk Management
VAR = Daily Standard Deviation × Confidence Interval Value × √Number of days
Daily Standard Deviation = Portfolio Value (₹) × Portfolio Standard Deviation (%)
Confidence Interval (Z) Value
• 2.33 for a 99% confidence,
• 1.65 for a 95% confidence,
• 1.29 for a 90% confidence.
Advanced Capital Budgeting
(1) Conversion of cashflow from real to nominal or nominal to real
• If inflation rate is same for all years
Nominal Cashflow year 1 = Real cashflow year 1 × (1 + IR)1
Nominal Cashflow year 2 = Real cashflow year 2 × (1 + IR)2
Nominal Cashflow year n = Real cashflow year n × (1 + IR)n
• If inflation rate is different for all years
Nominal Cashflow year 1 = Real cashflow year 1 × (1 + IR year 1)
Nominal Cashflow year 2 = Real cashflow year 2 × (1 + IR year 1) × (1 + IR year 2)
Nominal Cashflow year n = Real cashflow year n × (1 + IR year 1) × (1 + IR year 2)… till n
Here IR = Inflation rate for the year
(2) Conversion of discount rate from real to nominal or nominal to real
Nominal Rate = (1 + Real Rate) × (1 + Inflation Rate) – 1
(3) Profitability Index
PV of cash flows
Profitability index =
Initial outlay

(4) Variance and standard deviation

Cashflow variance (σ2) = ∑{(Cashflow − Expected casflow)2 × Probability of cashflow}
Project variance (σ2) = ∑{(NPV − Expected NPV)2 × Probability of NPV}

Sd (σ) of year 1 cashflow = √Cashflow Variance

Cashflow Variance 𝑌𝑒𝑎𝑟 1 Cashflow Variance 𝑌𝑒𝑎𝑟 2 Cashflow Variance 𝑌𝑒𝑎𝑟 𝑛
Sd (σ) of PV Dist. = √ (1+rate)2
+ (1+rate)4
+ ….+ (1+rate)2n

Sd (σ) of Project NPV = √Project Variance

(5) Co-efficient of variation (CV)
Coefficient of Variation calculates the risk borne for every percent of expected return
Stanadard Deviation
Coefficient of variation =
Expected Return

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 CA Final AFM Last Day Revision Notes by CA Rohit Chipper AIR 17

(6) Risk Adjusted Discount Rate

Risk adjusted discount rate (RADR) = Risk free rate + Risk premium
Risk premium = Risk index × (Minimum required return of firm – Risk free rate)
(7) Certainty Equivalent (CE)
Certain cash flow
Certainty equivalent (CE) =
Risky or expected cash flow

Certain Cashflow = Expected cashflow × Certainty equivalent

Certainty equivalent (CE) Co-efficient of Project = Sum of CE of each year cashflow
• Higher the CE of project - lower the risk and
• Lower the CE of project - higher the risk
(8) Formulas used in Sensitivity Analysis question
• NPV = Annual cash flow × PVAF (%, year) – Initial Investment
• Annual Cash flow = {Annual sale units × (Sale price – variable cost)} – Fixed cost
Sale value − Variable cost Annual cash flow + fixed cost
• Profit volume (PV ) ratio = =
Sale value Sale value

• Contribution per unit = Sale price per unit – Variable cost per unit
Fixed cost
• Breakeven units =
Contribution per unit

(9) Effective Annual Cost

PV of cash outflow
Effective Annual Cost (EAC) =
PVAF
(10) Expected Utility

Expected Utility = sum of (Utility value of cashflow × Probability of cashflow)

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 CA Final AFM Last Day Revision Notes by CA Rohit Chipper AIR 17

Security Analysis
(1) Arithmetic/ Simple Moving Average
simple average of the last n period prices
Simple moving average = (Sum total of share prices of last n no.of days)/(No.of days)
(2) Exponential Moving Average (EMA)
EMAT= Previous Day’s EMA + (Closing Price of day –Previous Day’s EMA) x Exponent
Here, EMAT = EMA of today
2
Exponent =
(1+ no. of day for which exponent is calculated)
if value of exponent is not given in question, then it can be calculated as above. For e.g.
question may have data for 8 days but it will ask to calculate exponent for 15 Days EMA
then exponent = 2/(15+1) = 2/16 = 0.125
(3) Run Test
Step 1: determine the sign of closing price change (+ / -). If price increase from
previous day then sign will + and if price decrease then sign will be –
Step 2: Count the number of runs, + ve sign and – ve signs
n1 = No of Positive changes
n2 = No of Negative changes
Step 3: Calculate average/ expected number of runs (μ)
2𝑛1 𝑛2
μ= +1
𝑛1 + 𝑛2
Step 4: Calculate standard deviation of number of runs

(μ−1)(μ−2)
σ = √ n + n −1
1 2
Step 5: Calculate the range in between of which no. of runs (r) should lie to reflect weak
form of market efficiency

Upper limit = μ + (σ × t) & Lower limit = μ - (σ × t)

t = Confidence value at given level of significance and degree of freedom (value of t will
be given in question)
Degree of freedom = No. of data used in standard deviation ( n1 + n2 − 1)
Step 6: If number of runs (r) as calculated in step 1 lies between upper & lower limit,
then it reflects weak form of market efficiency

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 CA Final AFM Last Day Revision Notes by CA Rohit Chipper AIR 17

Security Valuation
(1) Return on equity, Earning, Retention ratio and Growth
Earning Earning per share
Return on equity = =
Book value Book value per share
Earning = Book value of (equity & reserve) × Return on equity
Amount retained
Retention Ratio =
Earning
= 1 – dividend pay-out ratio (b)
Growth rate = return on equity (r) × retention ratio
(2) Expected/ Required rate of return
CAPM Approach (same as portfolio management)
Required return (Ri) = Risk free rate + Risk premium on security = Rf + β (Rm – Rf)
Dividend discount model
D1
Cost of equity as per dividend discount model (Ke) = ( × 100) + g
P0
D1
Above formula can be used calculate price as well P0 =
(Ke − g)

(3) EPS and other formulas

Earning available for equity or Profit after tax or Net income
EPS =
Total number of share

• Turnover can be calculated from asset turnover ratio.

Turnover
Asset turnover ratio =
Total Asset
Turnover = Asset Turnover ratio × Total Asset

• Operating expense can be calculated from operating margin

EBIT (Earning before interest and tax)
Operating margin =
Turnover
Operating expense = Turnover × (1 – Operating margin)

• Interest can be calculated from effective interest rate

If effective interest rate is given in question, then ignore the specific interest rate of
bond debenture
Interest = (Bond + Debenture) × Effective interest rate (TYK 12)
(4) Buy Back of Equity Share
Market Capitalisation after buy back = Market price after buy back × Active shares
= Market price after buy back × (Original shares – Shares bought back)
Surplus fund
Shares bought back =
Buy back price

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(5) Valuation of Equity Share

If growth rate is stable
D1 D0 (1+g)
P0 =
(Ke − g)
= (Ke − g)
D0
If there is zero growth, then P0 =
(Ke )

If growth rate is changing or price at time of sale is given in question

D1 D2 D3 Dn Pn
P0 = + 2 + 3 + ⋯ (1+ )n
+
(1+ Ke ) (1+ Ke ) (1+ Ke ) Ke (1+ Ke )n
D0 (1+g) D0 (1+g)2 D0 (1+g)3 D0 (1+g)n Pn
P0 = + + + ⋯ (1+ )n +
(1+ Ke ) (1+ Ke )2 (1+ Ke )3 Ke (1+ Ke )n
Dn+1
Pn = Price of share at the end on nth year when growth rate stabilizes =
(Ke − g)

Earnings Growth Model (Gordon formula based on earning instead of dividend)

EPS0 (1+g)
P0 =
(Ke −g)
Walter’s Approach
ROE
D1 + (E1 −D1 )
ke
P0 =
Ke
Multiplier Approach
Price
Price = EPS ×
EPS
Price = EPS × PE ratio
Price 1 1
PE Ratio = = EPS = Return on equity
EPS ( )
Price
Actual yiekd
Value = Paid up value of share ×
Expected yield
FCFF (1+g)
Value of firm =
(Ko −g)

Ko = Cost of capital for the company

FCFE (1+g)
Value of equity =
(Ke −g)

Ke = Cost of equity

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(6) Other formulas used in chapter

Fixed interest bearing funds Debenture+Preference share
Capital gearing ratio = =
Equity Sharholder fund Equity Share+reserves
Earning available to debenture, preference & equity
Interest & Fixed Dividend Coverage =
Payment to debenture & preference share

Deb.interest+Pref. dividend+Equity earning

Interest & Fixed Dividend Coverage =
Deb.interest+Pref. dividend

Debenture interest+PAT
Interest & Fixed Dividend Coverage =
Debenture interest+Preference dividend

(7) Right Valuation

A. Price of share after right issue/ Ex-right price
(Existing MPS × Existing No. of shares) + (Right issue price × No. of right share)
(Existing No. of shares) + (No. of right share)
MPS = Market price per share
Existing value + New Funds
Concept/ Memory trick:
Existing shares + New shares

B. Value of Right
Value of right = Price after right issue – Right issue price
C. Value of Right per original share
Value of right
= or
No.of original share required to buy 1 right share

= Existing MPS – Ex-right price

(7) Bond Valuation
(Redemption value −purchase price)
Annual interest + maturity
YTM = (Redemption value + purchase price)
2

Value of bond = Present value of all future cash flows from the bond
Redeemable Bond
Interest Interest Interest Interest Redemption value
Value of bond = + 2 + 3 +⋯ 𝑛 +
(1+ Kd ) (1+ Kd ) (1+ Kd ) (1+ Kd ) (1+ Kd )n

Irredeemable Bond
Bonds which will be hold till eternity, they will not have any redemption value
Interest
Value of bond =
(Kd )

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Zero Coupon Bond (ZCB)

Value of ZCB = Present value of redemption amount
Face value of ZCB
Value of bond =
(1+ Kd )n

(8) Duration and Convexity

Modified Duration (Volatility of bond)
It represents % change in market price of bond due to 1% change in yield rate (YTM)
Macaulay Duration in years
Modified duration or volatility of bond =
1+YTM
% Change in market price of bond = Change in YTM% × Modified duration
₹ Change in market price of bond = Market price × % Change in market price of bond
Convexity
Convexity of bond = C × (Change in YTM in decimals)2 × 100
(V+ ) − (V0 ) (V− ) − (V0 )
+ 1
Average of upward & downward change V0 V0
C= 2 = ×
(∆Y) 2 (∆Y)2
(V+ ) + (V− ) − (2V0 )
C=
(2V0 ) × (∆Y)2

Here, V+ = Price of bond if YTM increase by Δ Y

V- = Price of bond if YTM decrease by Δ Y
V0 = Initial price of bond
ΔY = Change in YTM

(9) Convertible Bond

1. Conversion ratio
No. of share per bond on conversion
2. Conversion value/ Stock value
= Conversion ratio × Market price per share
3. Conversion Premium or Premium over conversion value
Total conversion premium = Market price of bond – conversion value
(Market price of bond – conversion value)
Conversion premium in % = × 100
Conversion value
(Market price of bond – conversion value)
Ratio of Conversion premium = × 100
Conversion value
(Market price of bond – conversion value)
Conversion premium per share =
Conversion ratio

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 CA Final AFM Last Day Revision Notes by CA Rohit Chipper AIR 17

4. Conversion Parity price or Market Conversion Price

Market price of bond
Conversion parity price=
Conversion ratio
Conversion parity price= Current market price of share + Conv. Premium per share
5. Favourable Income differential per share
Coupon interest from bond −(conversion ratio ×dividend per share)
=
Conversion ratio
6. Premium payback period
Conversion premium
Payback period =
Favourable income differential per share

7. Straight value of bond

Straight value = present value of future cash flow from bond without conversion option
8. Percentage of downside risk
Market price of bond − Staright Value Market price of bond − Staright Value
% of downside risk = or
Market price of bond Straight Value of bond

9. Premium over straight value

Market price of bond − Staright Value
Premium over straight value =
Staright value of bond

(10) Money Market Instrument

(Face Value−Issue Price) 365
Yield = × × 100
Issue Price Actual days to maturity
Repurchase Options (Repo.) and Reverse Repurchase Agreement (Reverse Repo)
In this transaction a bank raise fund from another bank by selling government of India
(GOI) bonds and also agree to repurchase the bond after a specified time by paying
interest at repo rate on the initially raised fund
Clean Price: The price of GOI bond at the time when last interest is paid on bond.
Dirty Price or Current Market Price = Clean Price + Accrued interest on GOI bond
Accrued days
Accrued interest = Face value × Interest rate on bond ×
365

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 CA Final AFM Last Day Revision Notes by CA Rohit Chipper AIR 17

Portfolio Management
(1) Return, Expected return, Average return, Variance
𝐷 + (𝑃1 − 𝑃0)
𝑅𝑒𝑡𝑢𝑟𝑛 (𝑋) = 𝑥 100
𝑃0
Expected return (X̅ ) = Σ(PX) = sum total of (probability x possible return)
here, P = probability and X = possible return
∑𝑋
Average return (X̅ ) =
𝑁

Variance (σ2) = ∑{(𝑋 − 𝑋̅)2 × 𝑝(𝑥)}

∑(𝑋−𝑋̅)2
For historical data, σ2 = where.
𝑁

∑(𝑋−𝑋) ̅ 2
Standard deviation (σ) = √𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒 = √ = √∑(𝑋 − 𝑋̅)2 ⋅ 𝑝(𝑥)
𝑁

∑(𝑋−𝑋̅)(𝑌−𝑌̅)
Covariance (CovAB) = = ∑(𝑋 − 𝑋̅)(𝑌 − 𝑌̅)𝑃
𝑁
Covariance (CovAB) = σA × σB × rAB

Covariance (CovAB) = BA × BB × σM2 (used in TYK 14)

𝐶𝑜𝑣𝐴𝐵
Correlation (rAB) =
𝜎𝐴 𝜎𝐵
Beta A × Beta B × σM2
Correlation (rAB) =
σA × σB

rAB = rAM × rBM

rAB = Corelation between security A & B
rAM = Corelation between security A & market
rBM = Corelation between security B & market
Co-efficient of determination (r2) = systematic risk/ total risk
Co-efficient of determination (r2) = square of Correlation Coefficient (r)
Stanadard Deviation
Coefficient of variation =
Expected Return
Beta (βX) = CovXM/ σM2
Beta (βX) = rXM × σX × σM / σM2
Beta (βX) = rXM × σX / σM

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(2) Portfolio Risk

Total risk of stock/ portfolio = Total Systematic risk + Total Unsystematic risk

Systematic risk = (β of stock)2 × variance of market (σM2)

Systematic risk for portfolio = (β of portfolio)2 × variance of market (σM2)

Unsystematic risk of stock X (∈X2) = Total risk (σX2) – Systematic risk (βX2 × σM2)
Unsystematic risk for portfolio (∈P2) = (W2 X × ∈X2) + (W2 Y × ∈Y2)
Here. WX and WY are the weight of security X & Y in portfolio
∈X2 & ∈Y2 are the unsystematic risk of X & Y in portfolio

Portfolio Variance (σ2P) = (W2 A × σ2A) + (W2 B × σ2B) + (2 × W A × W B × σA × σB × rAB)

or
Portfolio Variance (σ2P) = (W2 A × σ2A) + (W2 B × σ2B) + (2 × W A × W B × CovarAB)
or
Portfolio Variance (σ2P) = (W2 A × σ2A) + (W2 B × σ2B) + (2 × W A × W B × BA × BB × σM)

Beta of portfolio (β) = (W A β A) + (W A β B) +……. W n β n

(3) CAPM, Characterstic line and Security market line

Required return (Ri) = Risk free rate + Risk premium on security
Required return (Ri) = Rf + β (Rm – Rf)

Equation of characteristic line: R̅ S = α + β Rm

Security market line: Ri = Rf + β (Rm – Rf)

(4) Arbitrage pricing theory (APT)

E(Ri) = Rf + FRP 1β1+ FRP2β2+ FRP3β3............ FRPnβn

Where,
Rf = Risk Free Rate
FRPn = Factor risk premium
βn = Sensitivity of the Factor n
Factor sensitivity of portfolio (β) = (W 1 β 1) + (W 2 β 2) +……. W n β n
weighted average of factor sensitivity of stock 1,2…. n in portfolio
(5) Sharpe Ratio, Treynor ratio and Alpha
(𝑅𝑥−𝑅𝑓)
Sharpe ratio =
𝜎

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 CA Final AFM Last Day Revision Notes by CA Rohit Chipper AIR 17

(𝑅𝑥−𝑅𝑓 )
Treynor ratio =
𝛽
Rx = Return on Security x/Portfolio
Rf = Risk Free Rate of Return
β = Beta of Security or Portfolio

Alpha = Actual Return on portfolio – Expected Return on portfolio as per CAPM.

(6) Minimum Risk/ Variance Portfolio
For constructing the minimum risk portfolio of 2 securities A & B,
the condition to be satisfied is
𝜎𝐵2 − 𝐶𝑜𝑣𝐴𝐵 𝑑𝑢𝑠𝑟𝑒 𝑘𝑎 𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒−𝑐𝑜𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒
WA = Memory trick:
𝜎𝐴2 + 𝜎𝐵2 − 2𝐶𝑜𝑣𝐴𝐵 𝑑𝑜𝑛𝑜 𝑘𝑎 𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒−2 × 𝑐𝑜𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒

WB = 1 - WA

(7) Sharpe’s Optimum Portfolio

(𝑅𝑥−𝑅𝑓 )
(a) Calculate Treynor ratio for each security, Treynor ratio =
𝛽

Security Return (RX) Beta (βX) Excess return (RX - Rf) Treynor ratio

(b) Make a ranked table by listing securities in sequence of highest to the lowest
Treynor ratio.

C value
Security Cumulative Cumulative
𝛃 𝛃
(High RX - Rf βX ∈X 2 × (𝐑𝐗 − 𝐑𝐟 ) total of × 𝛃 total of 𝛔𝟐𝐌 𝐱 𝐜𝐨𝐥𝐮𝐦𝐧 𝐅
to low) ∈𝟐 column E ∈𝟐 column G
𝟏 + (𝛔𝟐𝐌 𝐱 𝐜𝐨𝐥𝐮𝐦𝐧 𝐇)

A B C D E F G H I
Here,
∈X2 = Unsystematic risk
σ2M x column F
C value =
1+(σ2M x column H)

(c) Highest C value as calculated in column I is taken as cut off point

(d) Securities having Treynor ratio ≥ cut off point, should be selected
(e) Calculate Z value for selected securities (in 4 decimal)
𝜷
Z value = × (Treynor ratio − cut off)
∈2

(f) Calculate weight of each selected security as follow

Z value of security
Weight =
Sum of Z value of all securities
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Mutual Fund
(1) NAV, redemption price and public offer price
(Total Assets − Total Liabilities)
NAV =
Number of Outstanding Shares

Redemption Price = NAV – (Redemption Price × Back-end load%)

Redemption Price + (Redemption Price × Back-end load%) = NAV
Redemption Price × (1+ Back-end Load%) = NAV

Public Offer Price = NAV + (Public offer Price × Front end load%)
Public Offer Price - (Public Offer Price × Front End Load%) = NAV
Public Offer Price × (1− Front End Load%) = NAV.
(2) Holding Period Return and Annual Return
Investment value at end − Investent value at beginning + Income distributed
HPR =
Investent value at beginning

Investment value at end = No. of units × NAV at end or redemption price

Investment value at beginning = No. of units × NAV at beginning or offer price

Holding period Return × 365 days

Annual Return =
Number of days for which investment held

Total NAV = (No. of units in MF1 × NAV of MF1) + (No. of units in MF2 × NAV of MF2)
Total Yield = Income from MF1 + Income from MF2 +…

Holding period Return or Total Yield

No. of days investment held = × 365 Days
Annual Return or Annual Yield
Date of investment = Period end date – No. of days investment held + 1 day

Current value of index

Market value of equity share = Share price at cost ×
Value of index when share was bought
Interest rate or coupom om the bond
Market value of bond = Face value of bond ×
market expectation on the bond
Net assets of the mutual fund
NAV =
Number of units outstanding of mutual fund

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 CA Final AFM Last Day Revision Notes by CA Rohit Chipper AIR 17

Derivatives Analysis and Valuation

(1) Theoretical Pricing/ Valuation of Forward/ Future
Future price = Spot price + Carrying cost – Returns (dividends, etc.)
If simple interest rate = annual p.a. rate is given
Future price = Spot price × (1 + Rate × period)
If Compounded interest rate = monthly rate or annual rate with monthly rest is given
Future price = Spot price × (1 + Rate)period
If Continuously Compounded interest rate is given or value of e(rate × period) is given
Future price = Spot Price × e(rate × period)
*If return or dividend is given in % p.a. then it will be adjusted in rate.
Rate = Interest rate – Dividend rate
*If return or dividend is given in % but without p.a. then it is assumed that dividend will
be received on expiry so, it will be reduced from (spot price + carrying cost) (TYK 4)
Future price = (Spot price + Carrying cost) – Face value × Dividend %
Price of 1 future contract
Price of 1 Future Contract = Price of 1 future × Lot Size
Futures are traded in lots of different size.
Lot size = No. of future in 1 contract
Gain on Arbitrage = Theoretical value of future - Market price of future
(2) Number of future contracts to be bought or sold for hedging
− Value of share portfolio × (Existing β − Required β)
Price of 1 future contract × β of future
(3) Margin in Future Contract
If initial margin % is given in question (AQ 1)
Initial margin = Contract value × Initial margin %
If initial margin % is not given in question (TYK 14)
Initial margin = µ + 3σ
µ = Daily absolute change amount in contract value
σ = Standard deviation in daily absolute change
Maintenance margin = Initial margin × Maintenance margin %
Maintenance margin = Contract value × Maintenance margin %

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 CA Final AFM Last Day Revision Notes by CA Rohit Chipper AIR 17

(4) Binomial Model

𝑟−𝑑
Probability of up move (p) =
𝑢−𝑑
r = (1+ risk free rate) = e(rate × period)
Price after down move
d=
Price before down move
Price after up move
u=
Price before up move

Probability of down move = 1 - Probability of up move

Vu −Vd
Delta =
Su −Sd

Vu = Value of option if price goes up

Vd = Value of option if price goes down
Su = Upward price of the stock
Sd = Downward price of the stock
(5) Black-Scholes Model
X
Call Option price = {S × N(d1)} – { × N(d2)}
e(r × t)
S = current stock price
*If value of dividend is given in question reduce the PV of dividend from current stock
price (Ill 3).
X = strike price of the option
No. of month
t = time remaining until expiration, expressed as a percent of a year =
12
r = annual continuously compounded risk-free interest rate
S 𝜎2
log( ) + (𝑟+ )×𝑡
X 2
D1 =
v √t

D2 = D1 - σ√t
N(x) = standard normal cumulative distribution function (Area under Normal Curve)
Total area under normal curve = 1 so, N(x) can be calculated as follow
N(x) = 1 – Area under one tail
If two tail is given then
Area under two tails
N(x) = 1 –
2

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 CA Final AFM Last Day Revision Notes by CA Rohit Chipper AIR 17

(6) Put-Call Parity

VS + VP = PV(E) + VC
Both LHS and RHS portfolio will have the same payoff in all scenario.
VS = Current price of the underlying asset
VP = Price of put option at strike price E
VC = Price of call option at strike price E
PV(E) = Present value of the strike price E discounted at the risk-free rate
Foreign Exchange Exposure and Risk Management
(1) Annual Premium & Discount %
Forward rate−Spot rate 12
Premium or (Discount) % on base currency = × month
Spot rate
Calculation of forward rate from premium or discount %
(1) If Premium or Discount % is given on base currency
Premium %: Add to the spot rate in base currency
Forward rate = Spot rate × (100 + Premium % in base currency)
Discount %: Deduct from the spot rate in base currency
Forward rate = Spot rate × (100 - Discount % in base currency)

(2) If Premium or Discount % is given on price currency

Premium %: Deduct from the spot rate in base currency
Forward rate = Spot rate × (100 - Premium % in price currency)
Discount %: Add to the spot rate in base currency
Forward rate = Spot rate × (100 + Discount % in price currency)
(2) Interest Rate Parity (IRP)
(1+Interest rate in price currency)
Forward rate = Spot rate ×
(1+Interest rate in base currency)

(3) Purchasing Power Parity (PPP)

(1+Inflation rate in price currency)
Forward rate = Spot rate ×
(1+Inflation rate in base currency)
(4) Other formula
% Increase in demand = Elasticity of demand × % Decrease in price due to spot rate ch.

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 CA Final AFM Last Day Revision Notes by CA Rohit Chipper AIR 17

International Financial Management (IFM)

(1) Required rate if return
If β is given in question then it can be calculated using CAPM Approach
Required return (Ri) = Risk free rate + Risk premium on security = Rf + β (Rm – Rf)
If β is not given in question then it will be calculated as follow
(1+ Risk free rate in home) × (1+ Risk premium) = (1+ Required rate of return in home)
(1+ Risk free rate in foreign) × (1+ Risk premium) = (1+ Required rate of return in foreign)

(2) Modified Internal Rate of Return

n Future value of cashflow at then of the project
MIRR = √ -1
Initial investment
n = life of project
*Assume cashflow of year 0 as initial investment
(3) Cost of GDR
Dividend per GDR
Cost of GDR = + growth
Net Proceed
Dividend per GDR= No. of share underlying per GDR × Dividend % × Face value
Net Proceed = Issue price × (1- Floatation cost)
Issue price = No. of share underlying per GDR × Market price × (1- Discount on issue)
Number of GDR to be issued
Amount required for investment in the project
Number of GDR to be issued =
Net Proceed per GDR

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Interest Rate Risk Management

(1) FRA Settlement or Gain/ (Loss) on FRA
FRAs are cash settled so, difference in FRA contract rate and actual rate is settled
between buyer and seller
Notional principal ×(Actual rate−Contact Rate) × Period
Final Settlement =
1 + (Actual rate × Period)

(2) Number of IRF Contract to bought or sold for perfect hedge

Loan amount ×Duration of loan
No. of future contract to buy or sell =
Future contract size × Duration of future
* Duration of loan and duration of future can be different so, above formula is use to
calculate the contracts for perfect hedge.
(3) Gain/ (Loss) on Interest rate future
If IRF is bought = Future value × No.of contract × (Actual rate – Contract rate) × period
If IRF is Sold = Future value × No. of contract × (Contract rate – Actual rate) × period
(4) Physical Settlement of Interest Rate Future
(Conversion Factor) x (futures price) = Actual delivery price for a bond.
* Future price of the treasury bond = face value of the bond
Profit/ (loss) on settlement
(Futures Settlement Price x Conversion factor) – Quoted Spot Price of Deliverable Bond

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Business Valuation
(1) Cost of capital of the company (Weighted average cost of capital)
WACC (Ko) = We × Ke + Wd × Kd

Here, Ke = Cost of equity (using CAPM) = Rf + β (Rm – Rf)

Kd = Post tax cost of debt = Cost of debt after tax = interest rate on debt (1 – tax rate)
Equity
We = Weight of equity =
Equity+Debt
Debt
Wd = Weight of debt =
Equity+Debt

Use market value of debt & equity as weight and if market value is not available then
use book value as below
Equity = Equity Share capital + Reserves & Surplus + Intangible asset not recorded
Debt = Long term debt (Debenture, Long term load, Borrowings etc.)
*If there is long term debt but cost of debt (Kd) is not given in question then calculate
WACC using CAPM where β = Asset beta.
(2) Asset Based Valuation
(1) Net Asset Value/ Book Value
Value of equity = Net Asset at book value
= Fixed Assets + Net Current Asset – Long Term Debt – Contingent liability (if any)
= Equity share capital + Reserve & surplus – Contingent liability (if any)

(2) Net Realizable Value

Value of equity = Net Asset at realisable value
= Net asset at book value + Extra amount realised over book value – Lesser amount
realised over book value

(3) Income based

(1) PE Ratio or Earning Yield Multiplier
Price Per Share = EPS x PE Ratio
Price 1 1
PE Ratio = = EPS = Return on equity
EPS ( )
Price
Earning available for equity Profit after tax−Preference dividend
EPS =
Total number of share
= Total number of share

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(2) Earning Capitalization Method

Expected Annual Maintainable Profit
Capitalized Earning Value =
Capitalization Rate or Required Earning Yield

(4) Equity Value and Enterprise value

Enterprise value = Equity value + Debt - Surplus funds
Equity value = Enterprise value – Debt + Surplus funds
Equity Value = Number of shares × Market price of share
Question based on above concept: Illustration 2, 3, AQ1
(5) Economic Value Added (EVA)
EVA = NOPAT - (Invested capital × WACC)
NOPAT = Net Operating Profit After Tax
Calculation of NOPAT Amount
EBIT XX
Less: Tax on EBIT (XX)
Net Operating Profit After Tax XX
Add: Non cash expense (e.g., provision for bad debt) XX
Adjusted Net Operating Profit After Tax to be used in formula XX

If EBIT is not given in question but

(1) Profit after tax (Net income) is given then
Calculation of EBIT Amount
Proofit after tax
Profit before tax ( ) XX
(1−tax rate)
Add: Interest expense XX
EBIIT XX

(2) Financial leverage is available then (TYK 9)

Solve this equation to calculate EBIT
EBIT EBIT
Financial leverage = =
EBIT−Interest EBT
Calculation of invested capital
Calculation of Invested capital from liability side Amount
Equity Share Capital XX
Add: Reserves and surplus XX
Add: Long term debt (debentures, long-term borrowing etc.) XX
Add: Intangible asset (e.g., patent) not recorded in books XX
Add: Non cash adjustments done in NOPAT (e.g., provision for bad debt) XX
Invested capital XX
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Calculation of Invested capital from Asset side Amount

Total Asset XX
Less: Current liabilities XX
Add: Intangible asset (e.g., patent) not recorded in books XX
Add: Non cash adjustments done in NOPAT (e.g., provision for bad debt) XX
Invested capital XX

EVA
EVA dividend =
Number of equity share

(6) Relationship between Asset Beta, Equity Beta & Debt Beta
Equity Debt
Βasset = βequity × + βdebt ×
Equity + Debt (1−tax) Equity + Debt (1−tax)

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Mergers, Acquisition and Corporate Restructuring

(1) Synergy, Promoter holding, Non promoter holding
Value of synergy = Combined value – (Value of acquirer + Stand-alone value of target)
*Synergy can be in market value or earnings or cost etc.
No.of equity share held by promoter
Promoters holding =
Total no.of equity shares outstanding in company
No.of equity share held by non−promoter
Non promoters holding =
Total no.of equity shares outstanding in company

Non promoters holding = 1 – Promoter holding

(2) Equivalent EPS & Market price for shareholder of Target
Equivalent EPS for Target = EPS after merger × Exchange Ratio for target shareholders
* Need to calculate the equivalent EPS for target company if question ask to “Illustrate
the impact of merger on EPS” (TYK 8)
Equivalent Market price for Target = Market price per share × Exchange Ratio
(3) True Cost of merger or Net cost of acquisition
It’s the cost to the acquiror which can be calculated as difference between the market
value of share held by target shareholders after and before merger.
True cost for Acquiror or Net cost of acquisition in stock deal
= (MV of new co. after merger × % held by target) - MV of target before merger
True cost for Acquiror or Net cost of acquisition in cash deal
= Cash paid to shareholder of target - MV of target before merger
(3) Market Value of Merged Firm
If PE ratio is given or PE ratio of acquiror continue or it can be calculated from question
Total Market Value = PE ratio × Total earning of the company
Total Market Value = Market price per share (calculated using PE) × Total no. of share
If Market value of synergy is given or question ask to ignore synergy then use this
Total Market Value = Market value of Acquiror + Market value of Target + synergy
*If question ask to calculate “value of original shareholder”, then ignore the PE ratio and
calculate ethe market value of firm by adding the market value of target & Acquiror.
Value of acquiror shareholder = Value of firm after merger × % held by Acquiror
Value of Target shareholder = Value of firm after merger × % held by Target (TYK 14)
*If question gives the PE ratio of acquiror but does not give the PE ratio after merger
then assume that PE ratio of acquirer before merger will continue and remain
unchanged after merger (TYK 24).

Telegram: https://t.me/carohitchipper CA Rohit Chipper AIR 17 (YouTube)

 CA Final AFM Last Day Revision Notes by CA Rohit Chipper AIR 17

(4) Book Value of Merged Firm

Book value = Equity Share Capital + Reserves (including capital reserve) – Preliminary
expense
Total book value post-merger = Book value of Acquiror + Book value of Target
Book value
Book value per share =
Total number of equity shares

(5) Ratios
Total Capital
(1) Capital Adequacy ratio (CAR) =
Risky Weighted Assets

To calculate CAR after merger, calculate the total capital and risky weighted assets of
merged firm as below (risky weighted assets are not available in balance sheet).
Total capital (TC) = Share capital + Reserves + Capital reserves – Preliminary expense
Total Capital of Acquiror Total Capital of Target
Risky weighted asset after merger = +
CAR of Acquiror CAR of Target
Gross NPA
(2) Gross NPA (GNPA%) =
Gross Advance
NPA after merger = GNPA% Acquiror × Advance Acquiror + GNPA% Target × Advance Target

Telegram: https://t.me/carohitchipper CA Rohit Chipper AIR 17 (YouTube)