Corporate Finance Flashcards
In capital budgeting, the Initial Investment Outlay is calculated how?
Outlay = FCInv + NWCInc
or the cost of fixed capital plus net working capital
In capital budgeting, how do you calculate Net Working Capital?
NWCInv = change in non-cash current assets minus the change in non-debt current liabilities
or
NWCInv = change in accts receivable + change in inventory + change in accts payable
In capital budgeting, how are the After-Tax Operating Cash Flows calculated?
CF = (Sales - Costs - Dep)*(1 - T) + Dep
or
CF = (Sales - Costs)(1 - T) + TDep
or
CF = EBT*(1 - T) + D …(assuming no interest expense)
In capital budgeting, how is the Terminal Year After-Tax Non-Operating Cash Flow (TNOCF) calculated?
TNOCF = Salvage value + NWCInv - T(Salvage - BV)
How do you calculate Economic Profit for a project?
EP = EBIT(1-T) - WACCxCapitalInv
EP = NOPAT - $WACC
Capital = initial investment reduced by depreciation
Determine unlevered cost of equity from current cost of capital and capital structure
Cost of equity for the firm =
Cost of all-equity
+ (cost of all equity - cost of debt)(1-T)(D/E)
What is the post-merger HHI of a moderately concentrated industry?
Between 1000 and 1800
How much of a change in HHI will require government action?
For a moderately concentrated industry, a change of more than 100 will result in a possible challenge.
For a highly concer tested industry, a change of 50 or more will result in a challenge
Calculate economic income
Economic income = change in market value + after-tax cash flow
Calculate accounting income
Accounting income = net income reported on income statement
= taxable income x (1 - T) = (operating income before tax - interest) x (1 - T)
Calculate residual income.
Residual Income = NI - equity charge
Equity charge = beginning book value of equity * required return on equity
