Exam 2 Formula

Exam 2 Formula - Capital budgeting - NPV Free cash flow...

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Capital budgeting - NPV Free cash flow formula FCF = EBIT(1-T) + Depreciation – Gross fixed asset expenditures – (operating current assets – operating current liabilities) NPV = CF0+NPV(r,CF1:CF4) IRR = IRR(CF1:CF4) PI = PV of future CF/initial cost Discount = CF1/(1+rate)^1 Payback = prior year + (different/next year cf) Value of Ops Financial Statements on pg. 342 Vops =PV of expected future FCF = FCFt/(1+WACC)^t or Vops = FCF(1+g)/WACC – g >>> terminal or horizon value Required net operating working capital (BS)= (Cash+AR+Inven.) – (AP+Acrcruals) Expected return on capital (EROIC) EROIC0 = NOPAT1/Net operating capital0 = #(1+g)/# Vop1 = Capital1 + [Sale1(1+g)/(WACC-g)][OP-WACC(CR/1+g)] = Capital1 + Capital1(EROICn-WACC)/(WACC-g) If EROIC > WACC, then return on capital is greater than investor expect Cost of equity = WACC EVA =EBIT(1-T)-WACC MVA = MV – BV CA+FA = CL + D+ E CA – CL + FA = D + E CA – CL + FA = Operating Capital Operating Capital = Investors Capital MV = Vops + Non ops assets
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Exam 2 Formula - Capital budgeting - NPV Free cash flow...

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