Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
8 Cards in this Set
- Front
- Back
Risk Free Rate
|
RFR = 10 Year U.S. Gov + inflation differential
|
|
Market Risk Premium
|
Use long term global market risk premium
of 4.5% to 5.5% |
|
Beta
|
Use a industry beta from a globally-diversified market index
|
|
High inflation and income taxes
|
THINK: Forecast nomimal earnings before taxes
income taxes based on nominal earnings so forecast of nomial earnings before taxes needed |
|
High inflation and nominal capital expenditures
|
THINK: Forecast capital exp, dep, EBITA in REAL
nominal cap expend difficult to forecast from nominal sales, capital expenditures. Do: Forecast capital expenditures, depreciation, EBITDA on real basis |
|
High Inflation and Real Cash Flows from Working Capital
|
Does NOT= change in real working capital
nominal working cash flows must be converted to real cash flow |
|
Marginal Tax rate
|
Reflect local taxes applied to interest on debt
|
|
Arguments for adjusting cash flow rather than discount
rate |
1. Country risks diversifiable
2. Companies respond differently to country risk 3. Country risks are one sided (down only). 4. Identify cash flow effects aids in risk management |