#### Study sets matching "cfa corporate finance"

#### Study sets matching "cfa corporate finance"

compute beta capital using debt to capi…

The unlevered beta is often referred to…

beta estimates are sensitive to

two methods to estimate the before-tax…

The unlevered beta is often referred to as the asset beta beca…

the method of estimation and data used.

the yield-to-maturity approach and debt-rating approach.

compute beta capital using debt to capi…

The unlevered beta is often referred to…

The unlevered beta is often referred to as the asset beta beca…

The typical steps in the capital budget…

Projects susceptible to capital budgeti…

The average accounting rate of return (…

The profitability index

1) generating ideas, 2) analyzing individual proposals, 3) pla…

1) replacement, 2) expansion, 3) new products and services, an…

The typical steps in the capital budget…

1) generating ideas, 2) analyzing individual proposals, 3) pla…

Projects susceptible to capital budgeti…

1) replacement, 2) expansion, 3) new products and services, an…

Topic level outcomes?

Reading 21 - Capital Budgeting

Reading 22 - Capital Structure

Reading 23 - Dividends and share repurc…

1. evaluate capital budget projects... 2. evaluate capital struct…

1. calculate cashflow during expansion and replacement of proj…

1. Modigliani-Miller propositions... 2. target capital structure…

1. impact on share value... 2. information conveyed... 3. clientele…

Topic level outcomes?

1. evaluate capital budget projects... 2. evaluate capital struct…

Reading 21 - Capital Budgeting

1. calculate cashflow during expansion and replacement of proj…

Capital Budgeting

Typical capital budgeting steps (4)

5 key principles of capital budgeting

Independent projects

the process that companies use for decision making on long-ter…

1) Generate good investment ideas... 2) forecast CF for each proj…

1) Decisions are based on *incremental cash flows*... 2) Consider…

two projects do not depend on each other

Capital Budgeting

the process that companies use for decision making on long-ter…

Typical capital budgeting steps (4)

1) Generate good investment ideas... 2) forecast CF for each proj…

Agency costs (dividends and share repos)

Cash vs stock mergers... Takeaways:... • Sto…

Clientele effect (Dividend policies)... ●…

Conglomerate mergers... Not so attractive…

Investors are worried that management may take on new projects…

*Cash offer: target shareholder's gains are capped at the amou…

*Different groups of investors prefer different dividend polic…

Least likely for mature growth and stabilised companies. In th…

Agency costs (dividends and share repos)

Investors are worried that management may take on new projects…

Cash vs stock mergers... Takeaways:... • Sto…

*Cash offer: target shareholder's gains are capped at the amou…

Operating Break even Quantity

Breakpoint

Business Risk

NPV

Fixed Operating Cost / (Price Per Unit/VC Per Unit)

amount of capital where component cost changes / weight of com…

demand variability, sales price variability, input price varia…

preferred criterion when ranking projects because it measures…

Operating Break even Quantity

Fixed Operating Cost / (Price Per Unit/VC Per Unit)

Breakpoint

amount of capital where component cost changes / weight of com…

Capital Budgeting Expansion... (initial ou…

Capital Budgeting Expansion... (Op. Cash F…

Capital Budgeting Expansion... (TNOCF)

Capital Budgeting (replacement)

Initial outlay = FCInv + WCInv

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

TNOCF = Sal + NWCInv - T(Sal - BV)

- Same as expansion, except current after-tax salvage of old a…

Capital Budgeting Expansion... (initial ou…

Initial outlay = FCInv + WCInv

Capital Budgeting Expansion... (Op. Cash F…

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

Capital Budgeting:... calculate the yearly…

Capital Budgeting:... explain how inflatio…

Capital Budgeting:... evaluate capital pro…

Capital Budgeting:... describe types of re…

The depreciation method and speed effects the book value- such…

- Have to determine whether or not to use real or nominal cash…

Least Common multiple of Lives - the analyst extends the time…

Timing Options - ... Instead of investing now, the company can de…

Capital Budgeting:... calculate the yearly…

The depreciation method and speed effects the book value- such…

Capital Budgeting:... explain how inflatio…

- Have to determine whether or not to use real or nominal cash…

Capital Budgeting

Typical capital budgeting steps (4)

5 key principles of capital budgeting

Independent projects

the process that companies use for decision making on long-ter…

1) Generate good investment ideas... 2) forecast CF for each proj…

1) Decisions are based on *incremental cash flows*... 2) Consider…

two projects do not depend on each other

Capital Budgeting

the process that companies use for decision making on long-ter…

Typical capital budgeting steps (4)

1) Generate good investment ideas... 2) forecast CF for each proj…

Capital Budgeting process

Capital Budgeting Steps

Cap Budgeting Principals

Externalities

identifying and evaluating capital projects....projects where…

1) idea generation... 2) analyzing project proposals... 3) create th…

1) decisions based on cash flows, not accounting income... 2) Cas…

effects the acceptance of a project may have on other firm cas…

Capital Budgeting process

identifying and evaluating capital projects....projects where…

Capital Budgeting Steps

1) idea generation... 2) analyzing project proposals... 3) create th…

Capital Budgeting

Typical capital budgeting steps (4)

5 key principles of capital budgeting

Independent projects

the process that companies use for decision making on long-ter…

1) Generate good investment ideas... 2) forecast CF for each proj…

1) Decisions are based on *incremental cash flows*... 2) Consider…

two projects do not depend on each other

Capital Budgeting

the process that companies use for decision making on long-ter…

Typical capital budgeting steps (4)

1) Generate good investment ideas... 2) forecast CF for each proj…

Capital budgeting steps

Capital budgeting assumptions

Externality

Cannibalization

1. Generating Ideas... 2. Analyzing individual proposals... 3. Plann…

1. Decisions are based on CF rather than accounting concepts,…

effect of an investment on other things beside investment itse…

when an investment takes customers and sales from another part…

Capital budgeting steps

1. Generating Ideas... 2. Analyzing individual proposals... 3. Plann…

Capital budgeting assumptions

1. Decisions are based on CF rather than accounting concepts,…

Capital Budgeting

Categories of capital budgeting projects

5 Key Principles of Capital Budgeting

Capital Budgeting Methods

Identifying and evaluating projects for which the cash flows e…

- Replacement projects to maintain the business... - Replacement…

1. Decisions are based on incremental cash flows. Sunk costs a…

Payback period - the number of years taken to recover the init…

Capital Budgeting

Identifying and evaluating projects for which the cash flows e…

Categories of capital budgeting projects

- Replacement projects to maintain the business... - Replacement…

Capital Budgeting process

Capital Budgeting Steps

Cap Budgeting Principals

Externalities

identifying and evaluating capital projects....projects where…

1) idea generation... 2) analyzing project proposals... 3) create th…

1) decisions based on cash flows, not accounting income... 2) Cas…

effects the acceptance of a project may have on other firm cas…

Capital Budgeting process

identifying and evaluating capital projects....projects where…

Capital Budgeting Steps

1) idea generation... 2) analyzing project proposals... 3) create th…

Capital Budgeting

Typical capital budgeting steps (4)

5 key principles of capital budgeting

Independent projects

the process that companies use for decision making on long-ter…

1) Generate good investment ideas... 2) forecast CF for each proj…

1) Decisions are based on *incremental cash flows*... 2) Consider…

two projects do not depend on each other

Capital Budgeting

the process that companies use for decision making on long-ter…

Typical capital budgeting steps (4)

1) Generate good investment ideas... 2) forecast CF for each proj…

Capital Budgeting process

Capital Budgeting Steps

Cap Budgeting Principals

Externalities

identifying and evaluating capital projects....projects where…

1) idea generation... 2) analyzing project proposals... 3) create th…

1) decisions based on cash flows, not accounting income... 2) Cas…

effects the acceptance of a project may have on other firm cas…

Capital Budgeting process

identifying and evaluating capital projects....projects where…

Capital Budgeting Steps

1) idea generation... 2) analyzing project proposals... 3) create th…

Capital Budgeting Process (4 Steps)

Categories of Capital Budgeting Process…

Unconventional Cash Flows

5 Principles of Capital Budgeting

1. Generate Idea... 2. Analyze Projects... 3. Create Firm Budget... 4.…

1. Replacement to Maintain or Reduce Costs... 2. Expansion of cur…

More than one sign change

1. Cash Flow based, not accounting Income... 2. Opportunity cost…

Capital Budgeting Process (4 Steps)

1. Generate Idea... 2. Analyze Projects... 3. Create Firm Budget... 4.…

Categories of Capital Budgeting Process…

1. Replacement to Maintain or Reduce Costs... 2. Expansion of cur…

Shareholders wealth includes two elemen…

Principles of capital budgeting... 五大原则

Profit index

MACRS-half year convention... Modified acc…

Capital gain=P1-P0... Dividend income=D1... Holding period yield=(…

1. NPV based on cash flow, not profit... 2. Based on incremental…

1.Assume the asset is placed in service in the middle of the f…

Shareholders wealth includes two elemen…

Capital gain=P1-P0... Dividend income=D1... Holding period yield=(…

Principles of capital budgeting... 五大原则

1. NPV based on cash flow, not profit... 2. Based on incremental…

Capital Budgeting Process (4 Steps)

Categories of Capital Budgeting Process…

Unconventional Cash Flows

5 Principles of Capital Budgeting

1. Generate Idea... 2. Analyze Projects... 3. Create Firm Budget... 4.…

1. Replacement to Maintain or Reduce Costs... 2. Expansion of cur…

More than one sign change

1. Cash Flow based, not accounting Income... 2. Opportunity cost…

Capital Budgeting Process (4 Steps)

1. Generate Idea... 2. Analyze Projects... 3. Create Firm Budget... 4.…

Categories of Capital Budgeting Process…

1. Replacement to Maintain or Reduce Costs... 2. Expansion of cur…

Exam Focus

MM Capital Structure Irrelevance Propos…

2nd Proposition

Cost of Capital

This topic review explores various theories related to how a f…

In the MM no-tax world, the value of a company is not affected…

MM's second proposition with no taxes states that the cost of…

Exam Focus

This topic review explores various theories related to how a f…

MM Capital Structure Irrelevance Propos…

In the MM no-tax world, the value of a company is not affected…

Exam Focus

Dividend irrelevance

Bird-in-hand argument for dividend poli…

Tax Aversion

The focus of the Level II exam is valuation, so pay close atte…

Merton Miller and Franco Modigliani (MM) maintain that dividen…

Myron Gordon and John Lintner, however, argue that rs decrease…

Under such a situation, according to the tax-aversion theory,…

Exam Focus

The focus of the Level II exam is valuation, so pay close atte…

Dividend irrelevance

Merton Miller and Franco Modigliani (MM) maintain that dividen…

Exam Focus

Capital Budgeting Process

Categories of Capital Budgeting Projects

Principles of Capital Budgeting

This topic review covers various methods for evaluating capita…

The capital budgeting process is the process of identifying an…

1. Replacement projects to maintain the business... 2. Replacemen…

1. decisions are based on cash flows, not accounting income... 2.…

Exam Focus

This topic review covers various methods for evaluating capita…

Capital Budgeting Process

The capital budgeting process is the process of identifying an…