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

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

What are the four administrative steps…

What are the five key principals of ca…

What is cannibalization?

What is a conventional and unconventio…

1. Idea generation... 2. Analyzing project proposals... 3. Create t…

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

Occurs when a new project takes sales from an existing product.

It is conventional if the sign on the cash flows changes only…

What are the four administrative steps…

1. Idea generation... 2. Analyzing project proposals... 3. Create t…

What are the five key principals of ca…

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

compute beta capital using debt to cap…

The unlevered beta is often referred t…

beta estimates are sensitive to

two methods to estimate the before-tax…

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

the method of estimation and data used.

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

compute beta capital using debt to cap…

The unlevered beta is often referred t…

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

The typical steps in the capital budge…

Projects susceptible to capital budget…

The average accounting rate of return…

The profitability index

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

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

The typical steps in the capital budge…

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

Projects susceptible to capital budget…

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

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-te…

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

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

two projects do not depend on each other

Capital Budgeting

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

Typical capital budgeting steps (4)

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

Agency costs (dividends and share repos)

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

Clientele effect (Dividend policies)…

Conglomerate mergers... Not so attractiv…

Investors are worried that management may take on new project…

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

*Different groups of investors prefer different dividend poli…

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

Agency costs (dividends and share repos)

Investors are worried that management may take on new project…

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

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

Capital Budgeting

Incremental

Sunk Cost

externalities

4 steps of the ____ _____ process are 1. Idea Generation, 2.…

____ Cash Flows are the changes in CFs that will occur if the…

A ____ _____ is a cost that cannot be avoided even if the pro…

the effects the acceptance of a project may have on other fir…

Capital Budgeting

4 steps of the ____ _____ process are 1. Idea Generation, 2.…

Incremental

____ Cash Flows are the changes in CFs that will occur if the…

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 co…

demand variability, sales price variability, input price vari…

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 co…

Capital Budgeting Expansion... (initial o…

Capital Budgeting Expansion... (Op. Cash…

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…

Capital Budgeting Expansion... (initial o…

Initial outlay = FCInv + WCInv

Capital Budgeting Expansion... (Op. Cash…

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

Capital Budgeting:... calculate the yearl…

Capital Budgeting:... explain how inflati…

Capital Budgeting:... evaluate capital pr…

Capital Budgeting:... describe types of r…

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

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

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

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

Capital Budgeting:... calculate the yearl…

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

Capital Budgeting:... explain how inflati…

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

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-te…

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

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

two projects do not depend on each other

Capital Budgeting

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

Typical capital budgeting steps (4)

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

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 t…

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

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

Capital Budgeting process

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

Capital Budgeting Steps

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

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-te…

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

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

two projects do not depend on each other

Capital Budgeting

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

Typical capital budgeting steps (4)

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

Capital budgeting steps

Capital budgeting assumptions

Externality

Cannibalization

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

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

effect of an investment on other things beside investment its…

when an investment takes customers and sales from another par…

Capital budgeting steps

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

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…

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

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

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

Capital Budgeting

Identifying and evaluating projects for which the cash flows…

Categories of capital budgeting projects

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

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-te…

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

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

two projects do not depend on each other

Capital Budgeting

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

Typical capital budgeting steps (4)

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

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 t…

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

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

Capital Budgeting process

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

Capital Budgeting Steps

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

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 t…

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

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

Capital Budgeting process

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

Capital Budgeting Steps

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

Capital Budgeting Process (4 Steps)

Categories of Capital Budgeting Proces…

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 cu…

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 Proces…

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

Capital Budgeting Process (4 Steps)

Categories of Capital Budgeting Proces…

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 cu…

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 Proces…

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

Shareholders wealth includes two eleme…

Principles of capital budgeting... 五大原则

Profit index

MACRS-half year convention... Modified ac…

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…

Shareholders wealth includes two eleme…

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…

Exam Focus

MM Capital Structure Irrelevance Propo…

2nd Proposition

Cost of Capital

This topic review explores various theories related to how a…

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

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

Exam Focus

This topic review explores various theories related to how a…

MM Capital Structure Irrelevance Propo…

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

Exam Focus

Dividend irrelevance

Bird-in-hand argument for dividend pol…

Tax Aversion

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

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

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

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

Exam Focus

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

Dividend irrelevance

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

Exam Focus

Capital Budgeting Process

Categories of Capital Budgeting Projects

Principles of Capital Budgeting

This topic review covers various methods for evaluating capit…

The capital budgeting process is the process of identifying a…

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

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

Exam Focus

This topic review covers various methods for evaluating capit…

Capital Budgeting Process

The capital budgeting process is the process of identifying a…