1. Discounting Cash Flows

Question 1

What it the payback period ?

Answer 1

The time to recover initial investement cost

Question 2

What is the discounted payback period ?

Answer 2

The time to recover the initial investement cost using discounted cashflows

Question 3

Maximum Payback Period

Answer 3

Maximum length set by company to recover initial investement costs

Question 4

Internal Rate of Return

Answer 4

If the project’s annual discount rate was equal to the IRR, then the NPV would be zero
=> No easy way to find it, only with excell

Question 5

Hurdle Rate

Answer 5

Minimum IRR the company sets

Question 6

How do you set the hurdle rate ?

Answer 6

You want higher hurdle rate if more risk

Question 7

In theory what is the hurdle rate ?

Answer 7

The WAAC

Question 8

What is the value of a project ?

Answer 8

The cash flows generated by its operations + adjusted for impact of financing

Question 9

What is the value of operating assets ?

Answer 9

It is the entreprise value, it is the value of all future cash flows generated by OA and available to all financiers (shareholders, creditors…)

Question 10

What is the equity value ?

Answer 10

It is the value generated for shareholders only

Question 11

Free Cash Flows

Answer 11

Cash that a company generates after accounting for cash outflows to support operations and maintain its capital assets

(Company’s available cash repaid to creditors and as dividends to investors)

Question 12

What is EBIT

Answer 12

Benéfices avant intérpets et impots

Question 13

Capital Expenditures (CAPex)

Answer 13

Funds used by a company to acquire, upgrade and maintain physical assets such as property, plants, building and equipments.

Question 14

Salvage Value

Answer 14

Resale value of the assets

Question 15

What are PPE

Answer 15

Plants, Property & Equipement

Question 16

Incremental Cash Flows

Answer 16

The cash flows of a new projet from your company generates or subtract from your company

Question 17

Sunk Cost

Answer 17

Cost already incurred and cannot be recovered

Question 18

What is IRR used for ?

Answer 18

Estimate the profitability of potential investments (the higher, the better)

Question 19

SGA

Answer 19

Selling, General and Administrative Expenses

Question 20

EBIT Formula

Answer 20

Revenue - Cost of Goods Sold - Operating Expenses - Depreciation

Question 21

Net Working Capital Formula

Answer 21

Accounts Receivable + Inventory -Accounts Payable

Question 22

Can you use EV/EBITDA if net Income is negative ?

Answer 22

Yes

Question 23

Can you use P/E if net Income is negative ?

Answer 23

No