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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 |
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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 |
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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 |
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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 |
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Pro Forma earnings (Corporate Finance) |
invariably higher than actual earnings |
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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 |
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Economic profit |
Economic profit = NOPAT - $ WACC where NOPAT = EBIT (1 - tax rate) and $WACC = WACC x capital |
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Economic income from a project (Corporate Finance) |
Economic income = change in market cap + operating cash flows (after tax) |
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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 |
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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 |
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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 |