Corporate Finance
180 Corporate Finance The physical assets of a company depreciate and need to be replaced to maintain a certain level of growt ...
Free Cash Flow Valuation 181 Step 2: Estimate a Suitable Discount Rate for the Project A company can use its weighted average ...
182 Corporate Finance Step 6 Deduct the value of initial investment to arrive at NPV. One might calculate IRR given a forecast ...
Free Cash Flow Valuation 183 Terminal navigational handling Parking Cargo handling Fueling Watch hour services Non-traffic r ...
184 Corporate Finance ACCEPTED PRINCIPLES Estimation of project cash flows involves some generally accepted principles. After ...
Free Cash Flow Valuation 185 Sunk Costs Some expenses related to the project may be incurred before the investment analysis is ...
186 Corporate Finance 1 234 EBIT 1,000 2,000 3,000 4,000 Tax @ 35 percent 350 700 1,050 1,400 Depreciation at 33.3 percent ...
Free Cash Flow Valuation 187 Schedule XIV of the Companies Act 1956 Schedule XIV of the Companies Act 1956 prescribes rates of ...
188 Corporate Finance NPV without salvage value = –Rs 72.80 NPV with salvage value = Rs 124 Much of the project’s value comes ...
Free Cash Flow Valuation 189 The Impact of Inflation on NPV In chapter 2, we learnt about the concept of real and nominal rate ...
190 Corporate Finance Real cash flow = 100/1.04 = Rs 96.10 Consider another example: Nominal Real Year cash flow cash flow 1 1 ...
Free Cash Flow Valuation 191 Consider the following example: There are two mutually exclusive investments: A and B. Investment ...
192 Corporate Finance Investment Cash flows IRR percent NPV 12 A. 100,000 20,000 120,000 20 19,350 B. 100,000 100,000 31,250 2 ...
Free Cash Flow Valuation 193 Year Cash flow Rs 0 –1,000,000 1 300,000 2 400,000 3 500,000 4 600,000 Discount rate = 15 percent ...
194 Corporate Finance Approach 1 Discount the negative cash flows to year 0 and then to the initial investment. It becomes a c ...
Free Cash Flow Valuation 195 Profitability Index = NPV/Initial investment Profitability index is sometimes specified as Presen ...
196 Corporate Finance The profitability index and ranking are shown here: Project PI Ranking 1 1.0 3 2 1.1 2 3 1.1 2 4 0.8 4 5 ...
Free Cash Flow Valuation 197 Project Investment NPV Life A 5m 6.0 7 years B 3m 4.0 4 years Based on NPV if we were to choose A ...
198 Corporate Finance The correct procedure is to calculate PVs of the EAs over the least common multiple of the project lives ...
Free Cash Flow Valuation 199 Ehrhardt, Michael C and Phillip Daves (2000). ‘Capital Budgeting: The Valuation of Unusual, Irreg ...
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