Chapters 2, 3, & 10

Question 1

Incremental Cash Flow

Answer 1

Difference between taking the project on and an alternative (not doing it).

Direct outcome of the project.

Question 2

3 Steps to project CF

Answer 2

1) Pro Forma I/S
2) OCF = EBIT + Dep - Tax OR NI + Dep
3) Total CF = OCF + NWC + CS

Question 3

Salvage Value

Answer 3

Net of tax!!!!
Sales price x (1 - tax%)

Question 4

CF to Stockholders =

Answer 4

= NI - New Total Equity

Question 5

Financial Ratios: 5 categories

Answer 5

1) S/T Solvency
2) L/T Solvency
3) Asset Management
4) Profitability
5) Market Value

Question 6

Price Earnings Ratio

Answer 6

Price per share (MV)/ Earnings per share

Earnings per share
= NI/shares outstanding