Financial Modeling and Analysis Flashcards
Calculation for Net initial outflow
Invoice + Ship + Installation + Increase in working capital - cash proceeds on sale of old asset(net of tax)
Calculation for after-tax cash flows
(Pre-tax cash flow x (1-Tax rate)) + (Depreciation x Tax rate)
Calculation for net cash flow for final year
After-tax cash flow + Depreciation+ Salvage value
Calculation for Net present value methods
After-tax cash flow x appropriate present value of an annuity - initial cash outflow
Calculation for salvage value inflow
Proceeds from salvage - Basis of machine + Gain on salvage - taxes
Calculation for profitability index
PV of net future cash inflow / PV of net initial investment
What type of method is when the discount rate at which the present value of the cash inflows equals the present value of the cash outflows?
Internal Rate of Return
Calculation for payback period
Investment / Average expected cash flows
What is the objective of discounted payback?
Focuses on liquidity and profit
What are the characteristics of relevant costs?
Direct, Prime, Discretionary, and Opportunity Costs
Calculation for Net Proceeds on Sale of Old Assets
Proceeds on sale - tax paid on gain(GxT) + tax saved on loss(L x T)
Is the NPV method of capital investment valuation considered superior to Internal Rate of Return?
Yes
Should you accept the project when IRR > Hurdle rate?
Yes
Should you accept the project when IRR < Hurdle Rate?
No
What are the objectives of payback period method?
Liquidity and Risk
