1. Discounting Cash Flows Flashcards
What it the payback period ?
The time to recover initial investement cost
What is the discounted payback period ?
The time to recover the initial investement cost using discounted cashflows
Maximum Payback Period
Maximum length set by company to recover initial investement costs
Internal Rate of Return
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
Hurdle Rate
Minimum IRR the company sets
How do you set the hurdle rate ?
You want higher hurdle rate if more risk
In theory what is the hurdle rate ?
The WAAC
What is the value of a project ?
The cash flows generated by its operations + adjusted for impact of financing
What is the value of operating assets ?
It is the entreprise value, it is the value of all future cash flows generated by OA and available to all financiers (shareholders, creditors…)
What is the equity value ?
It is the value generated for shareholders only
Free Cash Flows
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)
What is EBIT
Benéfices avant intérpets et impots
Capital Expenditures (CAPex)
Funds used by a company to acquire, upgrade and maintain physical assets such as property, plants, building and equipments.
Salvage Value
Resale value of the assets
What are PPE
Plants, Property & Equipement
Incremental Cash Flows
The cash flows of a new projet from your company generates or subtract from your company
Sunk Cost
Cost already incurred and cannot be recovered
What is IRR used for ?
Estimate the profitability of potential investments (the higher, the better)
SGA
Selling, General and Administrative Expenses
EBIT Formula
Revenue - Cost of Goods Sold - Operating Expenses - Depreciation
Net Working Capital Formula
Accounts Receivable + Inventory -Accounts Payable
Can you use EV/EBITDA if net Income is negative ?
Yes
Can you use P/E if net Income is negative ?
No
