• Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

Card Range To Study

through

image

Play button

image

Play button

image

Progress

1/11

Click to flip

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;

11 Cards in this Set

  • Front
  • Back

Initial investment outlay

Initial investment outlay


= FCInv + NWCInv


= purchase price + increase in net working capital + shipping an installation costs




where increase in net working capital = change in non-cash current assets - change in non-debt current liabilities

After-tax operating cash flow from a project


(Corporate Finance)

CF = (S - C - D)(1 - T) + D


CF = (S - C)(1 - T) + TD




where C = costs = variable costs + fixed costs

TNOCF


Terminal year after tax non-operating cash flow


(Corporate Finance)

TNOCF = SalT + NWCInv - T(SalT - BT)




where NWCInv = net working capital investment


= increase in inventory - increase in accounts payable


and B = book value of project equipment = purchase and installation costs - depreciation

Three ways to analyse a project + differences

(Corporate Finance)

Sensitivity Analysis - single variable change




Scenario Analysis - multiple variable change




Simulation Analysis - Monte Carlo Simulation - maps out a distribution of variables based on distribution of for variables

Pro Forma earnings


(Corporate Finance)

invariably higher than actual earnings

Economic income

Economic income


= cash flow - economic depreciation




where economic depreciation = beginning MKV - ending MKV


MKV at time t = PV of remaining cash flows discounted at WACC

Economic profit

Economic profit = NOPAT - $ WACC




where NOPAT = EBIT (1 - tax rate)


and $WACC = WACC x capital

Economic income from a project


(Corporate Finance)

Economic income


=


change in market cap


+


operating cash flows (after tax)

Ways a firm can reduce it size

Divestitures: sell, liquidate or spin off a division or subsidiary; direct sale for cash, give up control


Carve-out: create new, independent (legal entity) company by issuing shares in a public offering (but not all will be offered); parent still maintains some control of the business


Spin-offs: create new co, but shares are distributed to parent co's shareholders (not public); management and operations diff from parent; parent receives no cash from transaction

Objective of corporate governance

1. Eliminate or reduce conflicts of interest


2. Use company assets in a manner consistent with the best interest of investors and stakeholders

Core attributes of an effective corporate governance system

1. Define rights of shareholders and other stakeholders


2. Define and communicate to stakeholders the oversight responsibilities of managers and directors


3. Provide for fair and equitable treatment in all dealings between managers, directors and shareholders


4. Have complete transparency and accuracy in disclosures regarding operations, performance, risk and financial position