University:
York University
Course:
ADMS 2541 | Introduction to Personal Finance
Academic year:

2021
Views:

381

Pages:

2
Author:

Niklas

Investment Year 0: ΔNWC = NWC today - NWC last year Year 1: ΔNWC = (100 + 100) - 50 = 150 The following table shows project working capital requirements for a project: Year Accounts Receivable Inventory Accounts Payable NWC 0 100 100 50 150 1 150 150 100 200 Capital Expenditures (CAPEX) = Gross PPE today - Gross PPE last year Spent to purchase additional machines, real estate, equipment, etc. How to calculate depreciation: Straight Line: (original value - salvage value) / useful life MACRS (Modified Accelerated Cost Recovery) Total value of tax shield: (D / (1 + r)) + (D * (1 - t) / (1 + r)²) + ... + (D * (1 - t)^n / (1 + r)^n) Salvage value: Market value Book value More CF than expected: need to pay taxes on diff Less CF than expected: tax shield for diff NPV = ∑(CFt / (1 + r)^t) 6 years for 100,00010 year scene dueSell today 50,0002101% tax rate 50,000 - 2101% * (50,000 - 29490)50,000 - 21010 = 2899050,000 - 4307.14 = 45,692.90 Sunk cost cannot be charged or removed by any decisions made today. CF from ending new project may improve operating CFs of existing projects. FCF (First) = FCF from project - terminal CFFCF (Last) = FCF from project + opportunity cost Terminal CF = NSV of fixed assets + recovered opp costs Cost of Capital NPV = ∑(CFt / (1 + r)^t) Weighted Average Cost of Capital (WACC): WACC = (D/V) * r_d * (1 - t) + (E/V) * r_e Cost of debt: r_d = YTM on existing debt Cost of equity: r_e = (D₁ / P₀) + g A company issued a dividend this morning for $2.00 per share. Analysts expect dividends to grow at 4.25% per year going forward. The price of the company's stock is currently $8.00. What is the implied cost of equity based on this information? r_e = (D₁ / P₀) + g = (2 / 8) + 0.0425 = 0.3031