Exercises Flashcards
How do you calculate EBIT if you have net income tax rate and interest payed
Becouse EBIT stands for Earnings before interest and taxes it is net_income/(1-taxr) + interest
If you have earnings before taxes EBT and the tax rate how can you calculate net income
EBT*(1-tr)
How do you calculate the value of a bond if you have the par value PV, the coupon rate CR, the interest rate IR, the maturity in years M and know the coupons are payed on a semianual basis
PV/(1+IR/2)^M2 + PVCR/2 * (1 - 1/(1+IR/2)^M*2) / (IR/2)
So the present value of the face value plus an annuity of the coupons but the maturity is multiplied by two and the interest and coupon rates are divided by two.
Premiums bond prices reduce over time if interest rates are constant
True
Discount bonds increase over time if interest rates are constant
True
If coupon rates are higher than the YTM the bond is discount
False, it is premium
What is the profitability index
The present value of future cashflows divided by the initial investment. So sum PV of all positive future cashflows and divide by the initial investment
When should you accept a project based on PI
When the Profitability index is greater than one
How do you compare mutually exclusive projects with the PI method
Becouse PI has the same problem of scale as the IRR you should see it the PI of switching from one project to another is larger than one.
How is margin of safety calculated
1 - (initial investment/PV(future positive cashflows))
if you have an investment in instalation of machinery, the project duration and useful life. An initial lisence fee, a yearly lisence and the tax & depreciation rates how do you calculate the net present value of the cost of the investment
As the tax savings are based on the accounting net income you first have to calculate the net income. Divide the investment over the period according to depreciation. The lisence payments and initial fee are not depreciated so they are accounted when they take place. The tax savings are the tax rate multiplied by the combined costs. Remove the tax savings from the costs and remove the accruals by subtracting the deprciation and add the initial investment cost when it ocurred. Lastly calcylate the present value over the periods and sum it up.
How is depreciation calculated using the 20% rule
It is depreciated 20% of the initial investment and in each subsequent year it is depreciated with 20% of the year before (not the initial investment)
If you have the corporate tax rate, and know the depreciation uses 20% reducing balance as well as knowing the sales revenue, initial investment, the yearly operating cost and the NWC spending how do you compute the incremental net income of the project
First you need to calculate the depreciation, as it is a 20% reducing balance it is based on 20% of the residual for each year so no straight line. than you just addd the sales revenue and operating cost for each year to calculate earnings before tax, remove the tax by thew tax rate and then you have the incremental income for each year. The NWC spending shall be ignored.
How should you calculate incremental cash flow if you have the incremental income, the depreciation, the initial investment, working capital and the residual value after the project
First you add back the depreciation to the net income, than you subtract the initial investment and add the residual value at the end of the period. Lastly you subtract the net working capital tied up
if you know the net working capital spending of previous periods and you know the project will end how do you calculate the NWC of the last period
Sum and subtract the NWC of all the previous periods as all has to be payed back.
What might make two mutually exclusive projects impossible to compare even with the equivalent annual cost method
If the machines will not be replaced once they run out, when you dont know the relative income streams especially if one machine brings in income longer than the other
If you have the npv the cost of two projects of different life length how do you decide which one to chose
Through the equivalent annual cost method by solving what annuity cashflow would give the npv of the project
Name some good assumptions when comparing investments
- Tax and discount rates are constant across time
- Overheads are not allocated and not incremental to the project
- Accounting depreciation is not a cash flow
- Any taxable loss can be written off against other projects within the company
- No incidental effect on sales, costs, etc., for existing projects
- Cash flows are forecast with accuracy
- Net working capital does not change in real terms.
Does the inflation rate
No, if it is mentioned it can probably be ignored
If the tax rate is given shall you take depreciation into account when calculating NPV
Yes becouse it aproximates the resale value
What is the formulat for the break even number of units for accounting
Fixed cost + depreciation) / (price - variable cost)
How many days are in a quarter
90
How do you calculate the ending receivables of a period if you have the time it takes for recivables to be collected, the beginning recivables and the sales
You first calculate what rate of recivables will be collected.
collection period / days in quarter. Than you calculate the value of recivables collected by multiplying the calculated rate with sales. Lastly you collect the after which you add the beginning collection. Finally you subtract the cash collected over the period with the sum of sales and recivables at the beginning of the period to get the recivables at the end of the period.
How do you calculate the inventory period if you have the cogs, net sales and the beginning and end inventory values
inventory turnover = cogs / average inv
inventory period = 365 / inventory turnover. Ingore sales
How do you calculate the account recievable period if you have net sales, cogs and account recievable beginning and end values
r turnover = credit sales / average recievable
r period = 365/ r turnover
How do you calculate the operating cycle
recievable period + inventory period
How do you calculate cash cycle
operating cycle - account payable period
How do you calculate the account payable period if you have beginning and end values, net sales and cogs
p turnover = cogs / average payable
p period = 365 / p turnover
What is the payables period for a company that pays imediately
0 dum dum
Does net income include the tax payments
Yes
When calculating the present value of a bond face value semianually shoud you use the semianual interest rate times twice the tame
Yes, dont just use the annual interest rate for the number of years.
What is the net working capita investment rule
What goes around must come around so if you invest x into nwc than you need to subtract that from cashflow in the beginning and add it back in the end
The coupon rate is bigger for premium
True
