[FIN300] Crib Sheet.docx - Cash Flow from Assets = CF to...

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Cash Flow from Assets = CF to Creditors + CF to Shareholders 1) OCF (Operating Cash Flow) OCF = EBIT + Dep. – Tax EBIT = Sales – Costs – Expenses - Dep Ex. Tax = (EBIT-Interest) x Tax Rate 1) CF to Creditors = Interest – Net New Borrowing CF to Cred = Interest - Long Term Debt (if given a chart with current year and previous year, subtract new LTD from old LTD to get 1 number) 2) (-) Capital Spending Cap. Ex = NFAend – NFAbeg + Dep 2) (+) CF to Shareholders = Dividends – Net New Equity Raised CF to Shareholders = Dividends – Common Shares 3) (-) Net Working Capital (NWC) ΔNWC = ΔCA (cur. ass.) – ΔCL (cur. liab.) If # is (+) = use of cash, if # is (-) = source of cash Creditors are also bondholders. If Dividends aren’t given: Div = NI – (RetainedEfinal – REinitial) CF from Assets = OCF – Cap Ex. – NWC CF to Cred + CF to Shareholders = CF from Assets Agency Problems: Conflict between stakeholders bondholders, shareholders, banks, managers, employees, suppliers, customers, government Results in agency costs and loss of value to corporation Sources of Cash: A firm’s activities that generates cash. Decreases in assets, and increases in liabilities and equity Uses of Cash: A firm’s activities in which cash is spent. Increases in assets, and decrease in liabilities and equity Regular Annuities VS Annuities Due: Regular Annuities: periodic payments occur at END of each period. Annuities Due: periodic payments occur at BEG. “CF start today / immediately” Ex. Your parents deposited $25000 into a bank account with 8 % interest. You plan to withdraw equal amounts from the account at the BEGINNING of each of the next four years (total of 4 withdrawls will be made starting today). What is the MOST you can withdraw annually? Present Value of Perpetuity : An investment pays $2000 at the end of every year forever. you require a return of 10%, how much would you be willing to pay for this investment? MAKE SURE TO SWITCH BACK RIGHT AWAY = TAT FV w/ Simple Interest: PV = present value, N = years, r = interest rate, FV = future value You invest 1000 today at 5% per year interest, how much would you have in 5 years? Int = 0.05(1000) = $50/year FV = PV(1+Nr) = 1000(1+(5x0.05) = $1250 If If a firm’s ROE is 14.92%, the EM is 1.35 & PM is 8.5, what is TAT? 1.30 = TAT

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