BIWS Advanced Questions Flashcards
Your company owns 70% of a subsidiary that generated $10 in NI this year. Show the entry to recognize the non-controlling interests entry.
IS:
(3) NI attributatble to non controlling interest
CF:
(3) NI
3 NI
no change in cash
BS:
3 non controlling interest (in equity portion of BS)
(3) R.E.
Discount rate: 10%
Cash flow growth rate: 3%
Initial cash inflow: 100
To infinite
- What is the PV?
- What does this PV mean?
- What does the 10% discount rate mean?
- 1,428
- This means that you would pay $1,428 to receive $100 cash inflow that would grow at 3% each year in order to receive a 10% annual return over the life of the investment.
- It means you would need that compounded annual return of today’s money to achieve that future cash flow at a specified future time period.
- How is GAAP accounting different from tax accounting?
- a)GAAP is accrual based and tax is cash based
b) GAAP uses straightline depreciation (or DDB). tax uses accelerated depreciation
c) GAAP is more complex and involves various rules with working capital, etc whereas tax accounting is only concerned with revenue/expenses to derive income tax
A short term investment (AFS) increases $10. Show the impacts. 20% tax rate.
Or
A short term investment (Trading) increases $10. Show the impacts. 20% tax rate.
IS:
No impact
CF:
No impact
BS:
10 investment
10 AOCI
Or
IS:
10 pre tax income
2 tax
8 NI
CF:
8 NI
(10) Gain
(2) cash
BS:
(2) cash
10 investment
8 R.E.
Your company owns 30% of another company that earns $20 in NI. Show me the impact. 20% tax rate.
IS:
6 pre tax income
~1 taxes
5 NI
CF:
5 Ni
(6) investment income
(1) cash change
BS:
(1) cash
6 investment equity
5 R.E.
A company you are anaylzing record $100 in Goowill impairment, but it is NOT deductible for cash tax purposes, ever. Show me the impact. 20% tax rate.
IS:
(100) pre tax income
(20) taxes
(80) NI
CF:
(80) NI
100 impairment
(20) DTL
BS:
(100) Goodwill
(20) DTL
(80) NI
A DTA is not created because there is no future cash deduction. It is not deferred nor is it ever allowed. Thus, you reduce the DTL category.
- The higher the discount rate, the ____ the PV.
- The lower the discount rate, the ____ the PV.
- Lower
- Higher
- If you were buying a vending machine business, would you pay a higher multiple for a business in which you owned the machines and depreciated them or in which you leased the machines as an operating lease? Depreciation and lease expense are the same amounts, all else is the same.
- Higher multiple with operating lease, because depreciation would be added back with EBITDA, thus having a higher EBITDA and thus lower multiple for an operating lease.
- What are some adjustments to make to the standard EV formula?
- How do you calculate % stock dilution? What is a common %?
- What is the real value of the company- Enterprise value or equity value?
a) subtract value of long term and equity investments (treat like cash)
b) add value of capital leases (treat like debt)
c) pension obligations (sometimes viewed as debt)
2. Take the difference between equity value with basic shares and then diluted equity value.
Common % is 10% or less
- Enterprise value
In a DCF, how is the derived value and discount rate related? (Not inverse relationship, but the other aspect)
In order to achieve the desired rate of return equal to the cost of capital, you would need to pay this much, hence its value.
View the discount rate as a return investors require in comparison to to other investments. I’m going to pay this amount because doing so generates x% return when I get those future cash flows over that period of time.
- How do project expenses for a company?
- Is short term debt a part of operating working capital?
- Typically a fixed % of revenues
- No (no interest bearing liabilities are a part of operating working capital)
$20 interest on debt with $10 as cash interest and $10 as PIK. Show me the impact. 20% tax rate.
IS:
(20) pre tax income
(4) taxes
(16) NI
CF:
(16) NI
10 PIK interest
(6) cash
BS:
(6) cash
10 bond payable
(16) R.E.
