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Corporate Finance > Corporate Finance > Flashcards

Corporate Finance Flashcards

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1
Q

Accounts Receivable

A

Day sales outstanding * Sales/365

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1
Q

Accounts Payable

A

Target payment terms * Purchases/365

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2
Q

Additional funds needed

A

ADD DEFINITION/CALCULATION!

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2
Q

Additional funds needed

A

Required increase in assets (A/S0)*Schange

Less spontaneous change in liabilities (L/S0)*Schange

Less increase in retained earnings (Net margin * S1 * RetRatio)

____

(A/S0)*Schange - (L/S0)*Schange - (Net margin * S1 * RetRatio)

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2
Q

Arithmetic vs geometric mean

A

INSERT DEFINITION

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2
Q

Effective cost of trade credit

A
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3
Q

Asset turnover

A

ADD DEFINITION

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4
Q

Asset β

A

βa=βe * (E/V)

E/V is market value capital structure. User surrogates to estimate unlevered β, calculate weighted averages of unlevered βs, re-lever at target’s market value capital structure

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5
Q

Cash conversion cycle

A

Inventory conversion + AR conversion - AP conversion

Inventory/Sales per day + AR/Sales per day - AP/COGS per day

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5
Q

CAPM

A

R = Rrf + β(Rm-Rrf)

  • Rrf = risk free rate (long-term treasury bond*
  • Rm = return on a broad market interest*
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5
Q

Beta (β)

A

Measures the variability of a security’s return relative to a portfolio/the market.

β>1 indicates risk greater than the market

β

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5
Q

Bond par value

A

contracted face value of a bond, amount to be repaid

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6
Q

After tax cost of debt

A

Kd=(T-bond30+debt spread)*(1-Rt)

Because interest payments on debt are always tax deductible, Kd is always considered after tax

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7
Q

Cost of trade credit

A

Discount/(100-disc) * 365/(DSO-disc period)

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7
Q

Day sales outstanding

A

(AR/Total credit sales) * Number of days

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7
Q

Cost of equity

A

T-bond yield + β * Market Risk premium

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8
Q

Discounted Cash Flows method (DCF)

A
  1. Establish free cashflows
  2. Estimate terminal value
  3. Discount CF and terminal value by WACC to derive PV of operations
  4. Add market value of non-operating assets
  5. Reduce by market value of debt
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9
Q

Effective annual rate

A

(1+i/m)mn-1

11
Q

Equity mutiplier

A

ADD DEFINITION

13
Q

Free cash flows

A

Sales - operating expenses - taxes - investment in operations

NOPAT + depreciation - change in capital investments

14
Q

Future value (FV)

A

FV = PV*(1+i)n

15
Q

Internal rate of return (IRR)

A

Discount rate at which the investment’s NPV = 0

17
Q

Inventory

A

Sales/Target inventory turnover

18
Q

Inventory turnover

A

COGS/Final inventory

19
Q

Market risk premium/equity premium

A

Required return on the market minus the risk-free rate (spread)

21
Q

Net margin

A

ADD DEFINITION

23
Q

Net operating working capital

A

Operating current assets - operating current liabities

Includes cash but excludes short-term notes payable

25
Q

Non-operating activities

A

Financing activities, non-operating investments (ie securities)

27
Q

NOPAT

A

EBIT * (1-tax rate)

29
Q

Operating activities

A

Activities related to the firm’s normal course of business operations; process of income generation and investments required to support it.

Accounts: net income, depreciation, various asset and liability accounts but excluding cash, securities and third-party debt.

30
Q

Payback period

A

Period of time to recovery of investment. Does not take into account time value of money or value of cashflows after payback.

31
Q

Periodic rate

A

i/m

i=interest rate

m=# periods per year

FV=PV*(1+(i/m))mn

32
Q

Present value (PV)

A

PV = FV*(1/(1+i)n)

33
Q

Retention Ratio

A

ADD DEFINITION

34
Q

ROA

A

ADD DEFINITION

35
Q

ROE

A

ADD DEFINITION

36
Q

ROIC

A

NOPAT/Total operating capital

37
Q

Sustainable growth rate

A

Profit margin * asset turnover * equity multiplier * retention ratio

NI/sales * sales/TA * TA/Eq * (NI-Div)/NI

38
Q

TIE

A

EBIT/Interest

40
Q

Total net operating capital

A

Net operating working capital (NOWC) + long-term operating assets (PPE)

41
Q

Unlevering Beta

A

Asset β = β * (E0/V0)

Relevered β = βA / (E1/V1)

42
Q

Valuation ratios

A

P/E

P/Sales

P/Book

P/EBITDA

P/FCF

43
Q

Valuing stock: Zero growth model

A

P = Div/r

r = expected return on stock

44
Q

Weighted average cost of capital (WACC)

A

WACC = wdkd(1-t) + wpfkpf + wcskcs

k is new cost of debt

d = debt

pf = preferred stock

cs = common stock

?????

Corporate Finance (1 decks)

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