Capital Budgeting

Question 1

How do you calculate NPV?

Answer 1

NPV = E CFt (1+r)^-t

NPV = -1500 + 550(1+0.1)^-1 + 550(1+0.1)^-2+…+550(1+0.1)^-5
=584.93

NPV=x2/(1+r)-I1

Question 2

What is the Financial Model Structure?

Answer 2

Revenue
Variable Costs
Fixed Costs
---
EBITDA
Depn (New)
G/L Sale (New)
Depn (Old)
G/L Sale (Old)
---
EBIT
Tax
---
NOPAT
ADD Depn (New)
ADD G/L Sale (New)
ADD Depn (Old)
ADD G/L Sale (Old)
---
Cashflows from Operations
Outlay
SV (Old)
SV (New)
---
Net Cashflows
Discount Factor
---
PV of Cash Flows
---
NPV

Question 3

What is the EBITDA equation? [Earnings before interest, tax, deprecation and amortization]

Answer 3

Revenue - Variable costs - fixed costs = EBITDA

Question 4

What is the EBIT equation? [Earnings before interest and tax]

Answer 4

EBITDA - Depn (New) + G/L on Sale (New) + Depn (Old) - G/L on Sale (Old) = EBIT

Question 5

What is the NOPAT equation? [Net operating profit after tax]

Answer 5

EBIT - (EBIT * Tax) = NOPAT

Question 6

What is the Cash Flows from Operations equation?

Answer 6

NOPAT + Depn (New) + G/L on Sale (New) + Depn (Old) + G/L on Sale (Old) = CFs from OPs

Question 7

What is the Free Cash Flows equation?

Answer 7

CFs from OPs - Outlay + Salvage Value (New) + Salvage Value (Old) = FCFs

Question 8

What is the Present Value of Cash Flows equation?

Answer 8

FCFs * (1+DF)^-n = PV of CF

Question 9

What is the NPV equation?

Answer 9

Sum of all the PV of CF’s