Unlevered cost of equity rsu = rf + RPm (bu) = 7.2% + 4%(.839) = 10.56% Operating cash flow using base case projections: 1995 1996 1997 1998 1999 Cash Flow 7‚772 9‚233 9‚807 10‚292 10‚513 Interest Expenses 3‚587 3‚042 2‚324 1‚507 599 Interest * Tax rate 1255.45 1064.7 813.4 527.45 209.65 TV1999 = 10513 + (10513*1.02)/(10.56%-2% ) = $135.81 Million Vunlevered = Net present value of future operating cash flow = $ 110.9 million. The firm cost of debt: Rd = 9% + 1.5% = 10.5% V taxshield=
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The Big Three of Cash Management Their effect on a company’s cash flow KARINA SLOAN 8/1/2009 MBA 557 – ENTREPRENEURSHIP What are the “big three” of cash management and their effect on a company’s cash flow? As a business owner I experience the effects of the “big three” almost on a daily basis. When we talk about the big three of cash management we are referring to account receivable‚ account payable‚ and inventory. As business owner and operator I’m always trying to find better
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Sen’s Sensibility: Managing the Cash Flow Ronal Sen was looking at the bank statement for the last quarter. He thought about the effort that he underwent to make those payments referred as withdrawals in the bank statement. He recollected the occasions in which he had to request the vendor to delay the deposit of the cheque given by him as he had insufficient balance in the bank. The company he had founded had outgrown the informal processes that he used to control it. He was interested in getting
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1 – Methodological Approach In this case‚ American CC – the intended acquirer of AirThread Connections- will use leveraged buyout (LBO) model‚ which means the company will finance the acquisition through bank loan or some other borrowing methods. Hence‚ the debt-to-equity ratio will change in time. Since we will need to estimate the discount rate any time the capital structure changes‚ neither WACC nor APV would be reliable alone. Therefore‚ Ms. Zhang should use the combination of WACC and APV
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000 $16‚250 $23‚400 Expenses (4‚250) (8‚000) (8‚100) Tax cost (2‚730) (3‚075) (4‚590) Net cash flow $6‚020 $5‚175 $10‚710 Discount factor (6%) .943 .890 Present value $6‚020 $4‚880 $9‚532 NPV $20‚432 11. a. Year 0 Year 1 Year 2 Year 3 Year 4 Before-tax cash flow $(500‚000) $52‚500 $47‚500 $35‚500 $530‚500 Tax cost (7‚875) (7‚125) (5‚325) (4‚575) After-tax cash flow 44‚625 40‚375 30‚175 525‚925 Discount factor (7%) .935 .873 .816 .763 Present value $(500
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Modèles du Free Cash Flow Thèmes choisis en gestion – États financiers et placements (ADMI 3500) Les exemples sont tirés du livre : Stowe‚ J. D.‚ Robinson‚ T.R.‚ Pinto‚ J. E. et Henry ‚ Equity asset valuation‚ Second Edition‚ 2010‚ CFA Institute Investment Series 2 1. Introduction Les modèles d’évaluation basés sur les flux monétaires actualisées (DCF model) considèrent la valeur intrinsèque d’une action comme étant la valeur actualisée des flux monétaires espérés. Dans ce chapitre
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Capital Cash Flows: A Simple Approach to Valuing Risky Cash Flows Richard S. Ruback* This paper presents the Capital Cash Flow (CCF) method for valuing risky cash flows. I show that the CCF method is equivalent to discounting Free Cash Flows (FCF) by the weighted average cost of capital. Because the interest tax shields are included in the cash flows‚ the CCF approach is easier to apply whenever debt is forecasted in levels instead of as a percent of total enterprise value. The CCF method retains
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could be included in the exam. Students should therefore not be surprised if other types of questions appear in the exam. 1. $200 invested today and earning 8 per cent per annum compounded semi-annually will grow to what amount at the end of three years? (A) (B) $251.94 (C) $380.75 (D) 2. $158.80 $253.06 Bill plans to fund his individual retirement account with the maximum contribution of $2‚000 at the end of each year for the next 20 years. If Bill can earn an effective
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from now. If the required return is 9 percent‚ what is the value of the investment? What would the value be if the payments occurred for 40 years? For 75 years? Forever? 2. Calculating Annuity Cash Flows. If you put up $25‚000 today in exchange for a 7.9 percent‚ 12year annuity‚ what will the annual cash flow be? 3. Calculating Perpetuity Values. Dawa Financial is trying to sell you an investment policy that will pay you and your heirs $35‚000 per year forever. If the required rate of return on this
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so. (10 points) This strategy does not consider risk. 3. The NuPress Valet Company has an improved version of its hotel stand. The investment cost is expected to be 72 million dollars and will return 13.50 million dollars for 5 years in net cash flows. The ratio of debt to equity is 1 to 1. The cost of equity is 13%‚ the cost of debt is 9%‚ and the tax rate is 34%. What is the NPV of the project? (10 points) WACC = .5*13+.5*9*(1-.34) = 9.47% PMT = 13‚500‚000‚ i=9.47%‚ n=5‚ PV = ?; NPV =
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