Formulas

Question 1

Payback Period

Answer 1

Initial Investment / Cash Inflows

Question 2

IRR

Answer 2

Discount factor when NPV = 0

Question 3

DCF

Answer 3

Sum of cash flows, discounted by the required rate of return

Question 4

Free Cash Flow

Answer 4

Operation Income (EBIT)
- Tax
+ Depreciation
= Gross Cashflow
- Change in Net Working Capital
- Cap Ex=
Free Cash Flow

Question 5

Terminal Value / Perpetuity

Answer 5

FCFn*(1+g) / (r”wacc”-g)

Question 6

Value

Answer 6

Sum(PV(FCFs)) + PV(Terminal Value)

Question 7

What is FE

Answer 7

Fixed Expenses

Question 8

Equity FCF

Answer 8

FCF - (FE(1-T) - change of debt)

Question 9

What is the discount rate of EFCF

Answer 9

Cost on equity

Question 10

Terminal value (considering the equity value) TV(e)

Answer 10

EFCF(1+g)/(r(e) - g)

Question 11

Equity Value

Answer 11

Sum(PV(EFCF)) + PV(TV(e))

Question 12

Capital Cash Flow (CCF)

Answer 12

CCF = FCF + T*FE (the tax shield)

Question 13

Discount rate of CCF?

Answer 13

r(wacc) before taxes

Question 14

Difference between CCF and FCF

Answer 14

CCF accounts deduct the interest payments from the tax rate (accounts for tax shield), while FCF doesn’t account for tax shields

Question 15

(APV) Adjusted Present Value Model

Answer 15

Sum(PV(FCF)) + TV/(1+r(u))ˆn + Sum(PV(EFE)) = V(u) + V(d)

EFE = Tax shield

Question 16

What are the pros of APV?

Answer 16

Assumes independence between investment and financial decisions

Question 17

What does Compressed APV do?

Answer 17

• Assumes irrelevance of financial decisions for the discount rate
• Uses CCF as cash flow concept
• Discount rate is the same, equal to the one of the unlevered firm

Question 18

Compressed APV = ?

Answer 18

Sum(PV(CCF)) + PV(TV) = Vu + PV(Tax shield)

Question 19

Enterprise Value

Answer 19

Sum(PV(FCF))
Discount factor - wacc

Question 20

Beta(equity) = ?

Answer 20

Beta(asset)(1+(1-T)(debt/equity))