(1.09)6 1 + g
Where:
FCFH+1 = Forecast FCF in year 7 = $6.8 million
g = Long-term growth rate = 3%
PVH = $67.6 million
Total value = PV(FCF) + PVH = $20.3 million + $67.6 million = $87.9 million
Therefore, the value of Rio Corporation is $87.9 million.
1) Marico industries has entered the beauty care market with Kaya Skin Care clinics, which aim to provide long-lasting, non-surgical skin treatments.
2) Kaya decided to set up self-owned, standardized branches instead of using a franchise model in order to ensure consistent quality of services.
3) Kaya will face challenges capturing market share from independent dermatologists and small beauty salons that dominate the industry, and will need to differentiate its services through elements like premium pricing, standardized processes, products, employee training, and research.
Capital Budgeting - Discounted Cash Flow Analysis - group syndicate 3Kiki Fitria Rahadian
This document contains the agenda and presentation for a group project on capital budgeting. The group will discuss definitions of capital budgeting, when it is used, importance, techniques like payback period, net present value and internal rate of return. It also contains solutions to 4 case studies on capital budgeting decisions around investments in new machines and product lines.
The document analyzes potential market segments for Vanraj Mini-Tractors. It recommends targeting small farmers as the primary segment as they have significant need and Vanraj offers cost benefits over bullocks or rented tractors. Semi-medium and medium farmers in horticulture are also recommended segments as Vanraj is suitable for their intercultural operations and land sizes. The analysis includes cost-benefit tables comparing options for different farm sizes and concludes Vanraj provides incremental benefits for small to medium sized farms.
Financial ratio analysis of marico & dabursurbhi mathur
This document analyzes and compares the financial ratios of two FMCG companies, Marico and Dabur. It provides the formulas and values for various liquidity, activity, profitability, capital structure, and market ratios for both companies for multiple years. Overall, the ratios indicate that Dabur generally has higher inventory turnover, asset turnover, and return on investment compared to Marico, but Marico has higher current ratios, earnings per share, and book value. The document thus uses ratio analysis to evaluate and compare the financial position and performance of the two FMCG companies.
This document discusses Maggi noodles, a brand owned by Nestle. It provides details on Maggi's history and introduction in India in 1982. Maggi quickly gained popularity and market share through promotions targeting children and working women. The document outlines Maggi's product portfolio expansion and covers its marketing strategies over time, including pricing, distribution, and promotions. It analyzes Maggi's performance through the stages of the product lifecycle model and discusses its current market leading position in India's instant noodles category.
Portfolio management and mutual fund analysis for idbi bank by mayur shuklaarun5530
The document is a project report submitted to the University of Pune in partial fulfillment of a 2-year full time MBA program. The project was carried out at IDBI Bank from June 1, 2006 to July 31, 2006. The objective of the project was to understand concepts of portfolio management and mutual funds, analyze various mutual fund schemes, and create an ideal portfolio. The report includes an acknowledgement, contents, executive summary, company profile of IDBI Bank, research objectives and methodology, data analysis of schemes, findings on ideal portfolio creation, and conclusions.
Bandhan has achieved scale since its inception by primarily lending to women in groups of 10-20 members and having those groups act as a control mechanism to ensure repayment. It has followed a customer-centric approach and maintained a simple model. Bandhan should transform into a bank to leverage its experience in maintaining customer relationships and providing value-added services across the financial product value chain. However, transforming will be challenging as it will need to comply with regulatory requirements like priority sector lending and maintaining statutory reserve ratios. It will also be challenging to convert its field staff focused on microcredit to perform banking activities and integrate existing staff with new hires. Bandhan can overcome these challenges with improved training, outsourcing some functions, hiring fresh recruits
1) Marico industries has entered the beauty care market with Kaya Skin Care clinics, which aim to provide long-lasting, non-surgical skin treatments.
2) Kaya decided to set up self-owned, standardized branches instead of using a franchise model in order to ensure consistent quality of services.
3) Kaya will face challenges capturing market share from independent dermatologists and small beauty salons that dominate the industry, and will need to differentiate its services through elements like premium pricing, standardized processes, products, employee training, and research.
Capital Budgeting - Discounted Cash Flow Analysis - group syndicate 3Kiki Fitria Rahadian
This document contains the agenda and presentation for a group project on capital budgeting. The group will discuss definitions of capital budgeting, when it is used, importance, techniques like payback period, net present value and internal rate of return. It also contains solutions to 4 case studies on capital budgeting decisions around investments in new machines and product lines.
The document analyzes potential market segments for Vanraj Mini-Tractors. It recommends targeting small farmers as the primary segment as they have significant need and Vanraj offers cost benefits over bullocks or rented tractors. Semi-medium and medium farmers in horticulture are also recommended segments as Vanraj is suitable for their intercultural operations and land sizes. The analysis includes cost-benefit tables comparing options for different farm sizes and concludes Vanraj provides incremental benefits for small to medium sized farms.
Financial ratio analysis of marico & dabursurbhi mathur
This document analyzes and compares the financial ratios of two FMCG companies, Marico and Dabur. It provides the formulas and values for various liquidity, activity, profitability, capital structure, and market ratios for both companies for multiple years. Overall, the ratios indicate that Dabur generally has higher inventory turnover, asset turnover, and return on investment compared to Marico, but Marico has higher current ratios, earnings per share, and book value. The document thus uses ratio analysis to evaluate and compare the financial position and performance of the two FMCG companies.
This document discusses Maggi noodles, a brand owned by Nestle. It provides details on Maggi's history and introduction in India in 1982. Maggi quickly gained popularity and market share through promotions targeting children and working women. The document outlines Maggi's product portfolio expansion and covers its marketing strategies over time, including pricing, distribution, and promotions. It analyzes Maggi's performance through the stages of the product lifecycle model and discusses its current market leading position in India's instant noodles category.
Portfolio management and mutual fund analysis for idbi bank by mayur shuklaarun5530
The document is a project report submitted to the University of Pune in partial fulfillment of a 2-year full time MBA program. The project was carried out at IDBI Bank from June 1, 2006 to July 31, 2006. The objective of the project was to understand concepts of portfolio management and mutual funds, analyze various mutual fund schemes, and create an ideal portfolio. The report includes an acknowledgement, contents, executive summary, company profile of IDBI Bank, research objectives and methodology, data analysis of schemes, findings on ideal portfolio creation, and conclusions.
Bandhan has achieved scale since its inception by primarily lending to women in groups of 10-20 members and having those groups act as a control mechanism to ensure repayment. It has followed a customer-centric approach and maintained a simple model. Bandhan should transform into a bank to leverage its experience in maintaining customer relationships and providing value-added services across the financial product value chain. However, transforming will be challenging as it will need to comply with regulatory requirements like priority sector lending and maintaining statutory reserve ratios. It will also be challenging to convert its field staff focused on microcredit to perform banking activities and integrate existing staff with new hires. Bandhan can overcome these challenges with improved training, outsourcing some functions, hiring fresh recruits
1. Cyworld started in 1999 as a virtual community for Korean students and grew rapidly.
2. In 2003, it was acquired by SK Telecom which helped expand its user base and connect to mobile services.
3. After the acquisition, Cyworld focused on expanding revenue streams like paid virtual items, mobile services, and advertising.
This document summarizes the product life cycle of Cadbury Dairy Milk chocolate in India over several decades. It discusses key events such as Cadbury Dairy Milk's introduction in India in 1948 and its market leadership position today with 70% market share. The summary also touches on challenges like new variants from competitors that could threaten its maturity stage. Overall, the document provides a high-level history of Cadbury Dairy Milk's introduction, growth, maturity and strategies over time in the Indian market.
The document discusses how Mahindra should position the Scorpio SUV in the Indian market. It analyzes competitors and market segments. It describes the development of the Scorpio, including a $120 million investment and 6 years to create an indigenous vehicle. Market research showed consumers wanted image and minor details over functionality. Mahindra used a unique manufacturing strategy of outsourcing design and engineering to lower costs. The Scorpio was positioned as a "Car Plus" to appeal to those wanting an SUV's power in a car. Dealerships and marketing differentiated the Scorpio from other Mahindra vehicles. The document recommends positioning the Scorpio as multi-utility for families and urban buyers through branding, targeting
Shanmugam Manjunath (1978-2005) was an alumnus of IIM Lucknow known for his integrity, sincerity and determination. He was killed for exposing fuel adulteration in India. The Manjunath Shanmugam Trust was formed by IIM alumni to pursue justice for his death and push for whistleblower protection laws in India. Manjunath's courageous act raised nationwide awareness of corruption and ensured whistleblowers are protected under new laws.
This document is a case study analyzing the financial reporting options for Merrimack Tractors and Mowers Inc. The company is facing rising costs and needs to determine whether to continue using LIFO (Last In First Out) or switch to FIFO (First In First Out) for inventory accounting. Continuing with LIFO would lead to declining profits over time. Switching to FIFO would boost short-term profits but could hurt the company in the long run as prices continue increasing. The conclusion is that the company should switch to FIFO for 2008 to remain viable but must take additional steps to reduce costs.
Cesim Global Challenge International Business Simulation and Strategy Game Gu...Cesim Business Simulations
Cesim Global Challenge is an international business and strategy management simulation game used in higher education institution level courses and corporate training programs to educate better business decision makers.
Find out more here: https://www.cesim.com/simulations/cesim-global-challenge-international-business-strategy-simulation-game
This document is an internship project report submitted by Jayesh Darji to BK School of Business Management in partial fulfillment of an MBA program. The report details Darji's summer internship at Parle Products Private Ltd, where they studied accounting and auditing practices. It includes an acknowledgements section, objectives, data collection methods, an executive summary of key findings, an industry overview of the biscuit sector, an overview of Parle Products, descriptions of accounting and auditing processes, and conclusions.
PAPER BOAT- Presentation on Marketing Mix & Promotion Mix.Mimansha Bahadur
The document provides information on Paper Boat drinks, an Indian beverage brand. It discusses the brand's product strategy, differentiation, mix, map, packaging, pricing, distribution channels, and promotional activities. Some key points include:
- Paper Boat targets urban Indian customers aged above 20 with nostalgia-focused drinks in 9 flavors.
- It differentiates with natural ingredients and unique flavors not found in competitors' products.
- Promotional activities include advertising, digital marketing, sponsorships, and initial sales through airlines and hotels.
- Recommendations include expanding availability, introducing winter drinks, and gift packs containing multiple flavors.
About cadbury (Product line and current market position)salman-fuu
Cadbury is a British confectionery company that was wholly acquired by American company Mondelez International in 2012. It was founded in Birmingham, UK in 1824 by John Cadbury as a grocer's shop selling items like tea and drinking chocolate. Over time it expanded and introduced innovations like Cocoa Essence in 1866. Some of its most popular brands include Dairy Milk chocolate, introduced in 1905, as well as Cadbury Creme Egg, Milk Tray, and Flake. Today it has a global presence but remains headquartered in Uxbridge, London.
The document provides an overview of the banking system in Sri Lanka. It discusses the four major types of banks: commercial banks, savings banks, merchant banks, and investment banks. For each type, it provides examples from Sri Lanka, describes their functions, and in some cases highlights specific banks like the National Savings Bank, Merchant Bank of Sri Lanka, and National Development Bank. It also discusses the role of the Central Bank of Sri Lanka in overseeing the country's banking sector.
This document provides background information on Midland, a global energy company with three divisions: exploration and production (E&P), refining and marketing (R&M), and petrochemicals. It discusses industry trends impacting each division and Midland's use of weighted average cost of capital (WACC) for investment decisions. The document then calculates Midland's enterprise WACC of 7.93% and recommends using both an enterprise rate and individualized divisional hurdle rates to properly evaluate investments.
Apollo Tyres aims to strengthen its brand awareness and perception through a marketing mix focused on product innovation, an extensive distribution network, and promotional campaigns emphasizing functional benefits. The company segments consumers and targets various vehicle types, focusing currently on passenger cars and the truck/bus segment. Apollo positions itself as providing high-performance, safe tyres at a value price through advanced technology.
Parle Products is an Indian manufacturer of biscuits, confectionery, and snacks that was founded in 1929. It has over 50 products in its portfolio including iconic Indian snacks like Parle-G biscuits and Melody chocolate. Parle targets both primary and secondary markets in India and is known for its quality products. The document discusses Parle's milestones over decades, product mix, breadth and depth of offerings, and applies the BCG matrix and product life cycle concepts to Parle's portfolio.
A project report on yamaha superbikes for yamaha motor india pvt.ltd.Projects Kart
The document discusses Yamaha Motor India's plans to launch the YZF-R15 sports bike in India. This would be Yamaha's first sports bike in India and would aim to fulfill Indian fans' dreams of riding a Yamaha R1-style bike at a more affordable price point. The R15 is expected to have a 150cc engine and incorporate racing technology from Yamaha's flagship R1 superbike. This launch would be significant in shaking up India's two-wheeler market by introducing a new segment of affordable sports bikes. Yamaha hopes the R15 will extend the brand's reputation for performance bikes to a wider audience in India.
Parle-G Biscuits Pvt. Ltd is an Indian company established in 1929 that was the first to manufacture biscuits in India. Parle holds a 40% market share of the total biscuit market in India. The company produces a wide range of biscuits and confectionery including their most popular product, Parle-G biscuits, which are considered the world's largest selling biscuit. The company focuses on quality, health, and taste and has various manufacturing plants across India.
Hindusthan Lever had a challenge with the competitors in Rural India. They devised a strategy to enter the market at the grass root level and utilize the entrepreneurial woman. Based on perceptions, there are some ethical questions. This case looks at the strategies on how to capture the emerging markets and work at the grass root level with the consumer behaviors. Not only understand the consumer behavior, but introduce the need and also the products to the consumers who NEVER used any product in that area.
The document provides an analysis of the tobacco sector in India. It includes industry statistics, market share of major players like ITC Ltd, Godfrey Phillips India and VST Industries, government initiatives to regulate tobacco, and ratio analyses of the key companies. SWOT, Porter's Five Forces, and BCG matrix analyses are also presented to evaluate the industry.
This document summarizes a project to measure the brand equity of Cadbury Dairy Milk chocolate. Three models were used: the Colombo Morrison model found Cadbury Dairy Milk had the highest brand loyalty at 37.74%; a revised model determined the actual loyalty was 16.98%. The Van Westendorp Price Sensitivity Meter model identified Rs. 18-25 as the optimal price range. Finally, the Brand Leveragability model found Cadbury Dairy Milk has potential to extend to cookies/cakes but risks in other categories like gum.
This document provides an overview of analyzing financial statements and key ratios. It discusses understanding the business, industry, and economic factors. It then covers various commonly used ratios to analyze a company's profitability, liquidity, solvency, and market performance including return on equity, return on assets, current ratio, quick ratio, inventory turnover, and price-to-earnings ratio. Sample calculations are shown for analyzing the 2009 financial statements of Home Depot using these different ratios.
This document provides an overview of payout policy, including dividends and stock repurchases. It discusses the different theories around whether dividend policy impacts firm value, including the views that it is irrelevant according to M&M theory, increases value according to the clientele and signaling effects, and decreases value due to tax considerations. It also outlines the different dividend payment processes and "Lintner's stylized facts" about manager preferences to smooth dividends and avoid cuts.
1. Cyworld started in 1999 as a virtual community for Korean students and grew rapidly.
2. In 2003, it was acquired by SK Telecom which helped expand its user base and connect to mobile services.
3. After the acquisition, Cyworld focused on expanding revenue streams like paid virtual items, mobile services, and advertising.
This document summarizes the product life cycle of Cadbury Dairy Milk chocolate in India over several decades. It discusses key events such as Cadbury Dairy Milk's introduction in India in 1948 and its market leadership position today with 70% market share. The summary also touches on challenges like new variants from competitors that could threaten its maturity stage. Overall, the document provides a high-level history of Cadbury Dairy Milk's introduction, growth, maturity and strategies over time in the Indian market.
The document discusses how Mahindra should position the Scorpio SUV in the Indian market. It analyzes competitors and market segments. It describes the development of the Scorpio, including a $120 million investment and 6 years to create an indigenous vehicle. Market research showed consumers wanted image and minor details over functionality. Mahindra used a unique manufacturing strategy of outsourcing design and engineering to lower costs. The Scorpio was positioned as a "Car Plus" to appeal to those wanting an SUV's power in a car. Dealerships and marketing differentiated the Scorpio from other Mahindra vehicles. The document recommends positioning the Scorpio as multi-utility for families and urban buyers through branding, targeting
Shanmugam Manjunath (1978-2005) was an alumnus of IIM Lucknow known for his integrity, sincerity and determination. He was killed for exposing fuel adulteration in India. The Manjunath Shanmugam Trust was formed by IIM alumni to pursue justice for his death and push for whistleblower protection laws in India. Manjunath's courageous act raised nationwide awareness of corruption and ensured whistleblowers are protected under new laws.
This document is a case study analyzing the financial reporting options for Merrimack Tractors and Mowers Inc. The company is facing rising costs and needs to determine whether to continue using LIFO (Last In First Out) or switch to FIFO (First In First Out) for inventory accounting. Continuing with LIFO would lead to declining profits over time. Switching to FIFO would boost short-term profits but could hurt the company in the long run as prices continue increasing. The conclusion is that the company should switch to FIFO for 2008 to remain viable but must take additional steps to reduce costs.
Cesim Global Challenge International Business Simulation and Strategy Game Gu...Cesim Business Simulations
Cesim Global Challenge is an international business and strategy management simulation game used in higher education institution level courses and corporate training programs to educate better business decision makers.
Find out more here: https://www.cesim.com/simulations/cesim-global-challenge-international-business-strategy-simulation-game
This document is an internship project report submitted by Jayesh Darji to BK School of Business Management in partial fulfillment of an MBA program. The report details Darji's summer internship at Parle Products Private Ltd, where they studied accounting and auditing practices. It includes an acknowledgements section, objectives, data collection methods, an executive summary of key findings, an industry overview of the biscuit sector, an overview of Parle Products, descriptions of accounting and auditing processes, and conclusions.
PAPER BOAT- Presentation on Marketing Mix & Promotion Mix.Mimansha Bahadur
The document provides information on Paper Boat drinks, an Indian beverage brand. It discusses the brand's product strategy, differentiation, mix, map, packaging, pricing, distribution channels, and promotional activities. Some key points include:
- Paper Boat targets urban Indian customers aged above 20 with nostalgia-focused drinks in 9 flavors.
- It differentiates with natural ingredients and unique flavors not found in competitors' products.
- Promotional activities include advertising, digital marketing, sponsorships, and initial sales through airlines and hotels.
- Recommendations include expanding availability, introducing winter drinks, and gift packs containing multiple flavors.
About cadbury (Product line and current market position)salman-fuu
Cadbury is a British confectionery company that was wholly acquired by American company Mondelez International in 2012. It was founded in Birmingham, UK in 1824 by John Cadbury as a grocer's shop selling items like tea and drinking chocolate. Over time it expanded and introduced innovations like Cocoa Essence in 1866. Some of its most popular brands include Dairy Milk chocolate, introduced in 1905, as well as Cadbury Creme Egg, Milk Tray, and Flake. Today it has a global presence but remains headquartered in Uxbridge, London.
The document provides an overview of the banking system in Sri Lanka. It discusses the four major types of banks: commercial banks, savings banks, merchant banks, and investment banks. For each type, it provides examples from Sri Lanka, describes their functions, and in some cases highlights specific banks like the National Savings Bank, Merchant Bank of Sri Lanka, and National Development Bank. It also discusses the role of the Central Bank of Sri Lanka in overseeing the country's banking sector.
This document provides background information on Midland, a global energy company with three divisions: exploration and production (E&P), refining and marketing (R&M), and petrochemicals. It discusses industry trends impacting each division and Midland's use of weighted average cost of capital (WACC) for investment decisions. The document then calculates Midland's enterprise WACC of 7.93% and recommends using both an enterprise rate and individualized divisional hurdle rates to properly evaluate investments.
Apollo Tyres aims to strengthen its brand awareness and perception through a marketing mix focused on product innovation, an extensive distribution network, and promotional campaigns emphasizing functional benefits. The company segments consumers and targets various vehicle types, focusing currently on passenger cars and the truck/bus segment. Apollo positions itself as providing high-performance, safe tyres at a value price through advanced technology.
Parle Products is an Indian manufacturer of biscuits, confectionery, and snacks that was founded in 1929. It has over 50 products in its portfolio including iconic Indian snacks like Parle-G biscuits and Melody chocolate. Parle targets both primary and secondary markets in India and is known for its quality products. The document discusses Parle's milestones over decades, product mix, breadth and depth of offerings, and applies the BCG matrix and product life cycle concepts to Parle's portfolio.
A project report on yamaha superbikes for yamaha motor india pvt.ltd.Projects Kart
The document discusses Yamaha Motor India's plans to launch the YZF-R15 sports bike in India. This would be Yamaha's first sports bike in India and would aim to fulfill Indian fans' dreams of riding a Yamaha R1-style bike at a more affordable price point. The R15 is expected to have a 150cc engine and incorporate racing technology from Yamaha's flagship R1 superbike. This launch would be significant in shaking up India's two-wheeler market by introducing a new segment of affordable sports bikes. Yamaha hopes the R15 will extend the brand's reputation for performance bikes to a wider audience in India.
Parle-G Biscuits Pvt. Ltd is an Indian company established in 1929 that was the first to manufacture biscuits in India. Parle holds a 40% market share of the total biscuit market in India. The company produces a wide range of biscuits and confectionery including their most popular product, Parle-G biscuits, which are considered the world's largest selling biscuit. The company focuses on quality, health, and taste and has various manufacturing plants across India.
Hindusthan Lever had a challenge with the competitors in Rural India. They devised a strategy to enter the market at the grass root level and utilize the entrepreneurial woman. Based on perceptions, there are some ethical questions. This case looks at the strategies on how to capture the emerging markets and work at the grass root level with the consumer behaviors. Not only understand the consumer behavior, but introduce the need and also the products to the consumers who NEVER used any product in that area.
The document provides an analysis of the tobacco sector in India. It includes industry statistics, market share of major players like ITC Ltd, Godfrey Phillips India and VST Industries, government initiatives to regulate tobacco, and ratio analyses of the key companies. SWOT, Porter's Five Forces, and BCG matrix analyses are also presented to evaluate the industry.
This document summarizes a project to measure the brand equity of Cadbury Dairy Milk chocolate. Three models were used: the Colombo Morrison model found Cadbury Dairy Milk had the highest brand loyalty at 37.74%; a revised model determined the actual loyalty was 16.98%. The Van Westendorp Price Sensitivity Meter model identified Rs. 18-25 as the optimal price range. Finally, the Brand Leveragability model found Cadbury Dairy Milk has potential to extend to cookies/cakes but risks in other categories like gum.
This document provides an overview of analyzing financial statements and key ratios. It discusses understanding the business, industry, and economic factors. It then covers various commonly used ratios to analyze a company's profitability, liquidity, solvency, and market performance including return on equity, return on assets, current ratio, quick ratio, inventory turnover, and price-to-earnings ratio. Sample calculations are shown for analyzing the 2009 financial statements of Home Depot using these different ratios.
This document provides an overview of payout policy, including dividends and stock repurchases. It discusses the different theories around whether dividend policy impacts firm value, including the views that it is irrelevant according to M&M theory, increases value according to the clientele and signaling effects, and decreases value due to tax considerations. It also outlines the different dividend payment processes and "Lintner's stylized facts" about manager preferences to smooth dividends and avoid cuts.
The document provides information on classifying, measuring, recording, and reporting on long-lived assets including property, plant, and equipment, natural resources, and intangibles. It discusses the different depreciation methods including straight-line, units-of-production, and declining balance. The document also covers asset impairment, disposals of long-lived assets, and international differences between US GAAP and IFRS reporting standards.
This document summarizes key concepts around financial statement adjustments. It discusses the purpose of adjustments to match revenues and expenses to the correct accounting period. It provides examples of adjusting journal entries for unearned revenues, accrued revenues, prepaid expenses, accrued expenses, and deferred income taxes. Finally, it discusses how to prepare the adjusted trial balance and financial statements, including closing entries to reset revenue and expense accounts for the next period.
The document discusses key concepts related to operating activities and how they are recognized and reported on the income statement. Specifically, it covers:
- The operating cycle of purchasing inventory, selling products/services, collecting payment.
- Revenue is recognized when delivery occurs and payment is reasonably assured, while expenses match costs to revenues in the period incurred.
- The income statement reports revenues, expenses, gains and losses, while the statement of stockholders' equity and balance sheet are also impacted by operating activities.
PAKISTAN: General Elections 2013 Inquiry Commission ReportShahid Abbasi
Final and complete report of General Elections 2013 Inquiry Commission, the commission was setup after the accord between Pakistan Muslim League (PMN) and Pakistan Tehreek e Insaf (PTI).
The document provides an overview of the statement of cash flows, including:
- Key classifications of cash flows from operating, investing, and financing activities
- How the statement of cash flows is prepared using the indirect method by reconciling net income
- Important relationships between the statement of cash flows, balance sheet, and income statement
- Interpretation and analysis of cash flow information
This document discusses accounting for owners' equity in different types of business organizations including corporations, sole proprietorships, and partnerships. It covers topics like authorized shares, issued shares, treasury shares, retained earnings, contributed capital, dividends, stock transactions, and equity accounts for sole proprietors and partnerships.
Designing with Heirlooms by Mary Ann NewcomerEva Montane
This document provides gardening tips and plant combinations using heirloom flowers and plants. It recommends trying lily of the valley with hellebores and allowing them to run rampant under trees. Various heirloom flowers and plants are mentioned such as bleeding heart, peony, pinks, poppies, foxglove, lily of the valley, viola, daisy, iris, morning glory and sweet peas. Tips include mass planting Centranthus rubra and using German bearded iris with blue geranium and baptisia. Combinations such as campanula glomerata with blue spruce and alchemilla mollis are also suggested.
Gardening in the interior west by Robert LittlepageEva Montane
To successfully garden in a particular region, it is important to understand your soil composition. The document discusses analyzing your soil using a soil texture triangle to determine your soil type is sandy loam. It emphasizes the importance of organizing your garden space before planting, including making a map of the property and a design brief to determine how you want to use different areas. By planning out the design first, your garden will be easier to maintain with good organization and use of local plants suited to the climate and soil conditions.
The document discusses creating drama in gardens through the use of containers. It highlights Sheila Schultz's garden, which formerly was a basketball court but is now filled with dazzling containers holding succulents, as well as vertical gardening on the walls. The summary encourages the use of containers to transform outdoor spaces.
Bill Adams: Rock Gardening Plants from Near and FarEva Montane
This document discusses rock gardening and plants from different regions of the world for rock gardens. It mentions plants from Europe and Asia, South Africa, and North America and provides websites for The Eriogonum Society and information on rock gardening called SunScapes.
The document discusses key concepts in accounting including the balance sheet, accounting equation, journal entries, T-accounts, and financial statements. It provides examples of analyzing transactions for a company called Papa John's Pizza and how the accounting equation stays balanced. The accounting cycle and process of tracking account balances through the general journal, general ledger, and financial statements is also summarized.
The document discusses capital structure and corporate finance, covering topics such as how much a corporation should borrow, the impact of corporate and personal taxes on capital structure decisions, and the costs of financial distress. It provides examples and analyses of capital structure considerations for companies and aims to help determine the optimal amount of debt a firm should take on given tradeoffs between tax benefits and financial distress costs.
1) The document discusses the valuation of firms in mergers and acquisitions, including definitions of different types of mergers, models used to value firms, and steps in the valuation process.
2) It also analyzes the proposed merger between Hewlett-Packard (HP) and Compaq in 2001, including their market shares across different product segments and arguments from supporters and opponents of the merger.
3) The valuation process for the HP-Compaq merger included analyzing historical stock price performance, calculating implied premiums, and using comparable public market multiples to value the two companies.
Chapter 18 internal ratings based approachQuan Risk
This document summarizes Chapter 18 of the textbook "Managing Credit Risk Under The Basel III Framework, 3rd ed". It discusses the internal ratings-based approach (IRB) for calculating capital requirements under Basel III. The IRB approach allows banks to use their own estimates of probability of default (PD), loss given default (LGD), and exposure at default (EAD) in the capital calculation. The document outlines the IRB formulas for different exposure types including retail, corporate, and institutional exposures. It also discusses credit risk mitigation techniques within the IRB approach.
Fm11 ch 15 corporate valuation, value based management, and corporate governanceNhu Tuyet Tran
This document discusses corporate valuation, value-based management, and corporate governance. It defines assets-in-place and nonoperating assets as the two types of assets a company owns. It provides formulas for calculating the value of operations using discounted cash flow analysis and outlines how to determine total corporate value, claims on value, and market value added. The document also discusses value-based management, the four value drivers, and how corporate governance mechanisms like anti-takeover provisions and board composition can impact manager entrenchment and shareholder value.
The document discusses capital budgeting and estimating cash flows. It defines capital budgeting as identifying, analyzing, and selecting investment projects with returns extending beyond one year. The capital budgeting process involves generating proposals, estimating after-tax cash flows, evaluating projects, selecting projects, and reevaluating implemented projects. It provides examples of estimating initial cash outflows, incremental cash flows, and terminal cash flows for new asset and replacement projects.
This document discusses various methods for calculating the cost of capital, which is the required rate of return on financing for a firm or project. It covers calculating the costs of different sources of financing like debt and equity. It also discusses approaches for determining the cost of equity like the dividend discount model, capital asset pricing model, and cost of debt plus risk premium. The weighted average cost of capital (WACC) is presented as the weighted combination of the different financing costs. Limitations of the WACC and adjustments for factors like flotation costs are also covered. The document concludes with approaches for calculating project-specific required rates of return for acceptance decisions.
The document discusses capital budgeting and estimating cash flows for investment projects. It defines capital budgeting as identifying, analyzing, and selecting long-term investment projects. The capital budgeting process involves generating proposals, estimating after-tax cash flows, evaluating projects, selecting projects, and reevaluating implemented projects. It provides examples of estimating initial cash outflows, incremental cash flows, depreciation, and terminal cash flows for new asset and replacement asset projects.
This document provides an overview of capital budgeting and estimating cash flows. It defines capital budgeting as identifying, analyzing, and selecting long-term investment projects. The key steps in the capital budgeting process are generating proposals, estimating after-tax cash flows, evaluating projects, selecting projects, and reevaluating projects. Cash flows used for analysis should be cash amounts, operating flows, after-tax, and incremental to the project. The document also discusses how to calculate initial cash outflows, interim cash flows, terminal cash flows, and the impact of taxes and depreciation. It provides an example of analyzing an asset expansion and replacement project.
This document discusses the Modigliani-Miller (M&M) propositions regarding capital structure and valuation under no taxes and corporate taxes. It outlines the assumptions of M&M, defines business risk, and explains the principle of additivity. It then derives M&M Proposition I and II for both the no tax and tax cases, showing how firm value and cost of equity are unaffected or affected by financial leverage. Graphs illustrate the relationships. The document also discusses Miller's modification regarding personal taxes and the net tax advantage of debt. It concludes by relating firm value to the weighted average cost of capital.
Valuation and capital budgeting for the levered firmOnline
1. The three approaches for valuation with leverage are the adjusted present value (APV), flow to equity (FTE), and weighted average cost of capital (WACC) approaches.
2. The APV approach values a project by calculating the net present value (NPV) of unlevered cash flows plus the present value of financing tax shields.
3. The FTE approach discounts levered cash flows to equity holders at the cost of equity.
4. The WACC approach discounts unlevered cash flows at the weighted average of the costs of debt and equity.
- The weighted-average cost of capital (WACC) is used to calculate the required rate of return for a firm's projects and value the entire firm. It is a weighted average of the costs of the firm's various sources of financing.
- To calculate the WACC, you first calculate the market values of the firm's debt and equity securities. You then determine the required rates of return for each security. Finally, you take a weighted average of the after-tax costs.
- The WACC represents the minimum return the firm must earn overall on new projects that have average risk. It provides the basis for net present value analysis and valuation of the entire firm.
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2) It provides three methods (50-50 combined taxable income, 4% gross receipts, section 482) to determine the appropriate transfer price or commission amount in order to calculate the IC-DISC's taxable income.
3) The form requires information about the transaction, such as gross receipts, costs, expenses, and taxable income amounts, in order to calculate the transfer price or commission using one of the provided intercompany pricing methods.
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2. Infrastructure Companies - Toll Road, Seaport, Airport operators.
3. EPC (Engineering, procurement and Construction) companies.
4. Turnkey projects installation cos
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Industries Impacted
1. Non Utility generators - Solar and Wind companies/ Gencos
2. Infrastructure Companies - Toll Road, Seaport, Airport operators.
3. EPC (Engineering, procurement and Construction) companies.
4. Turnkey projects installation cos
This document discusses Modigliani and Miller's proposition that a firm's debt policy does not impact its value under certain assumptions. It presents the M&M proposition that a firm's expected return on equity equals its expected return on assets plus a premium based on financial leverage. Examples are provided to illustrate how leverage affects returns and risk. The document also discusses calculating a firm's weighted average cost of capital (WACC) and how the tax benefit of debt is incorporated into an after-tax WACC calculation.
This document provides information for a financial accounting course taught through Southwestern College Professional Studies. It outlines the instructor, class schedule, course description and materials, as well as policies regarding attendance, withdrawals, incompletes, and academic integrity. The course will focus on basic accounting principles, financial statements, ratio analysis, and using financial information for decision making. Students will complete assignments, homework, and research article abstracts that will be evaluated for a letter grade.
This document provides an overview of analyzing financial statements and key ratios. It discusses understanding the business, industry, and economic factors. It then covers various commonly used ratios to analyze a company's profitability, liquidity, solvency, and market performance including return on equity, return on assets, current ratio, quick ratio, and price-to-earnings ratio. Sample calculations are shown for analyzing the financial statements of Home Depot using these different ratios.
This document discusses different types of investments in other corporations and the appropriate accounting methods for each. It covers passive investments in debt and equity securities, investments intended to exert significant influence or control over another company, and mergers and acquisitions that result in a controlling interest. The accounting depends on factors like ownership percentage and intent of the investment. Methods include amortized cost, fair value, equity, and purchase accounting resulting in goodwill for mergers.
- Bonds are used to finance a company's operations and are considered debt, while equity refers to funds from owners. There are advantages like tax deductibility of interest expense but also risks like bankruptcy if obligations cannot be met.
- Bonds have a principal amount, coupon/stated interest rate, and maturity date. They can be secured by assets or callable/convertible. An indenture contract specifies legal provisions.
- Bonds can be issued at par value, at a discount if below par, or at a premium if above par. Discounts/premiums are amortized over the bond term using straight-line or effective interest methods to calculate periodic interest expense.
This document provides an overview of liabilities, including their definition, classification, and key types. It discusses current and noncurrent liabilities, and covers accounts payable, payroll liabilities, notes payable, bonds, leases, and estimated liabilities. It also introduces concepts of present value and its applications in accounting. International differences in refinanced debt classification and borrowing in foreign currencies are highlighted.
The document discusses key concepts related to inventory costing and financial reporting. It covers the primary goals of inventory management, items included in inventory, costs included in inventory, and the flow of inventory costs. It then describes inventory costing methods like specific identification, FIFO, LIFO, and weighted average. It explains how these different methods can affect ending inventory valuations and cost of goods sold, and compares their impacts on financial statements and income taxes.
1. The document summarizes key concepts related to accounting for sales revenue, receivables, and cash including revenue recognition principles, credit card sales, sales discounts, sales returns and allowances, bad debts, and cash controls.
2. It also discusses calculating ratios like gross profit percentage, receivables turnover, average collection period, and preparing bank reconciliations.
3. Examples are provided of journal entries for credit card sales, sales discounts, sales returns, estimating bad debts expense, and reconciling cash accounts.
This document summarizes key concepts around financial statement adjustments. It discusses the purpose of adjustments to match revenues and expenses to the correct accounting period. It provides examples of adjusting journal entries for unearned revenues, accrued revenues, prepaid expenses, accrued expenses, and deferred income taxes. Finally, it discusses how to prepare the adjusted trial balance and financial statements, including closing entries to reset revenue and expense accounts for the next period.
The document discusses the balance sheet and how business transactions affect balance sheet accounts. It explains that to understand a balance sheet, we need to know what activities cause changes, how activities affect accounts, and how companies track balances. The conceptual framework and key elements of financial statements are introduced. Qualitative characteristics like relevance and reliability are important to financial reporting. The balance sheet equation of Assets = Liabilities + Stockholders' Equity is examined through examples of transactions at Papa John's Pizza and their impact on accounts. Journal entries and T-accounts are analytical tools used to keep track of account balances.
The document provides an overview of financial statements and accounting. It discusses the key players in a business, the accounting system and financial statements. The four basic financial statements are the balance sheet, income statement, statement of retained earnings, and statement of cash flows. It also discusses accounting principles, auditing, business entities, careers in accounting and related topics.
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In this session I delve into the encryption technology used in Microsoft 365 and Microsoft Purview. Including the concepts of Customer Key and Double Key Encryption.
Maruthi Prithivirajan, Head of ASEAN & IN Solution Architecture, Neo4j
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- Reduction in onboarding time from 5 weeks to 1 day
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zkStudyClub - Reef: Fast Succinct Non-Interactive Zero-Knowledge Regex ProofsAlex Pruden
This paper presents Reef, a system for generating publicly verifiable succinct non-interactive zero-knowledge proofs that a committed document matches or does not match a regular expression. We describe applications such as proving the strength of passwords, the provenance of email despite redactions, the validity of oblivious DNS queries, and the existence of mutations in DNA. Reef supports the Perl Compatible Regular Expression syntax, including wildcards, alternation, ranges, capture groups, Kleene star, negations, and lookarounds. Reef introduces a new type of automata, Skipping Alternating Finite Automata (SAFA), that skips irrelevant parts of a document when producing proofs without undermining soundness, and instantiates SAFA with a lookup argument. Our experimental evaluation confirms that Reef can generate proofs for documents with 32M characters; the proofs are small and cheap to verify (under a second).
Paper: https://eprint.iacr.org/2023/1886
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Effective Application Security in Software Delivery lifecycle using Deployment Firewall and DBOM
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The software team must secure its software delivery process to avoid vulnerability and security breaches. This needs to be achieved with existing tool chains and without extensive rework of the delivery processes. This talk will present strategies and techniques for providing visibility into the true risk of the existing vulnerabilities, preventing the introduction of security issues in the software, resolving vulnerabilities in production environments quickly, and capturing the deployment bill of materials (DBOM).
Speakers:
Bob Boule
Robert Boule is a technology enthusiast with PASSION for technology and making things work along with a knack for helping others understand how things work. He comes with around 20 years of solution engineering experience in application security, software continuous delivery, and SaaS platforms. He is known for his dynamic presentations in CI/CD and application security integrated in software delivery lifecycle.
Gopinath Rebala
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GraphSummit Singapore | The Art of the Possible with Graph - Q2 2024Neo4j
Neha Bajwa, Vice President of Product Marketing, Neo4j
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Why You Should Replace Windows 11 with Nitrux Linux 3.5.0 for enhanced perfor...SOFTTECHHUB
The choice of an operating system plays a pivotal role in shaping our computing experience. For decades, Microsoft's Windows has dominated the market, offering a familiar and widely adopted platform for personal and professional use. However, as technological advancements continue to push the boundaries of innovation, alternative operating systems have emerged, challenging the status quo and offering users a fresh perspective on computing.
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Communications Mining Series - Zero to Hero - Session 1DianaGray10
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• Communication Mining Overview
• Why is it important?
• How can it help today’s business and the benefits
• Phases in Communication Mining
• Demo on Platform overview
• Q/A
Sudheer Mechineni, Head of Application Frameworks, Standard Chartered Bank
Discover how Standard Chartered Bank harnessed the power of Neo4j to transform complex data access challenges into a dynamic, scalable graph database solution. This keynote will cover their journey from initial adoption to deploying a fully automated, enterprise-grade causal cluster, highlighting key strategies for modelling organisational changes and ensuring robust disaster recovery. Learn how these innovations have not only enhanced Standard Chartered Bank’s data infrastructure but also positioned them as pioneers in the banking sector’s adoption of graph technology.
Enchancing adoption of Open Source Libraries. A case study on Albumentations.AIVladimir Iglovikov, Ph.D.
Presented by Vladimir Iglovikov:
- https://www.linkedin.com/in/iglovikov/
- https://x.com/viglovikov
- https://www.instagram.com/ternaus/
This presentation delves into the journey of Albumentations.ai, a highly successful open-source library for data augmentation.
Created out of a necessity for superior performance in Kaggle competitions, Albumentations has grown to become a widely used tool among data scientists and machine learning practitioners.
This case study covers various aspects, including:
People: The contributors and community that have supported Albumentations.
Metrics: The success indicators such as downloads, daily active users, GitHub stars, and financial contributions.
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Development Practices: Best practices for creating, maintaining, and scaling open-source libraries, including code hygiene, CI/CD, and fast iteration.
Community Building: Strategies for making adoption easy, iterating quickly, and fostering a vibrant, engaged community.
Marketing: Both online and offline marketing tactics, focusing on real, impactful interactions and collaborations.
Mental Health: Maintaining balance and not feeling pressured by user demands.
Key insights include the importance of automation, making the adoption process seamless, and leveraging offline interactions for marketing. The presentation also emphasizes the need for continuous small improvements and building a friendly, inclusive community that contributes to the project's growth.
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Explore more about Albumentations and join the community at:
GitHub: https://github.com/albumentations-team/albumentations
Website: https://albumentations.ai/
LinkedIn: https://www.linkedin.com/company/100504475
Twitter: https://x.com/albumentations
Generative AI Deep Dive: Advancing from Proof of Concept to ProductionAggregage
Join Maher Hanafi, VP of Engineering at Betterworks, in this new session where he'll share a practical framework to transform Gen AI prototypes into impactful products! He'll delve into the complexities of data collection and management, model selection and optimization, and ensuring security, scalability, and responsible use.
2. 19-2
Topics Covered
After Tax WACC
Valuing Businesses
Using WACC in Practice
Adjusted Present Value
Your Questions Answered
3. 19-3
Capital Project Adjustments
1. Adjust the Discount Rate
Modify the discount rate to reflect capital
structure, bankruptcy risk, and other factors.
1. Adjust the Present Value
Assume an all equity financed firm and then
make adjustments to value based on
financing.
4. 19-4
After Tax WACC
Tax Adjusted Formula
D E
WACC = rD × (1 − Tc) × + rE ×
V V
5. 19-5
After Tax WACC
Example - Sangria Corporation
The firm has a marginal tax rate of 35%. The cost of
equity is 12.4% and the pretax cost of debt is 6%.
Given the book and market value balance sheets,
what is the tax adjusted WACC?
6. 19-6
After Tax WACC
Example - Sangria Corporation - continued
Balance Sheet (Book Value, millions)
Assets 1,000 500 Debt
500 Equity
Total assets 1,000 1,000 Total liabilities
7. 19-7
After Tax WACC
Example - Sangria Corporation - continued
Balance Sheet (Market Value, millions)
Assets 1,250 500 Debt
750 Equity
Total assets 1,250 1,250 Total liabilities
8. 19-8
After Tax WACC
Example - Sangria
Corporation - continued
Debt ratio = (D/V) = 500/1,250 = .4 or 40%
Equity ratio = (E/V) = 750/1,250 = .6 or 60%
D E
WACC = rD × (1 − Tc) × + rE ×
V V
10. 19-10
After Tax WACC
Example - Sangria Corporation - continued
The company would like to invest in a perpetual
crushing machine with cash flows of $1.731
million per year pre-tax.
Given an initial investment of $12.5 million,
what is the value of the machine?
11. 19-11
After Tax WACC
Example - Sangria Corporation - continued
The company would like to invest in a perpetual crushing machine with
cash flows of $1.731 million per year pre-tax. Given an initial investment
of $12.5 million, what is the value of the machine?
Cash Flows
Pretax cash flow 1.731
Tax @ 35% 0.606
After-tax cash flow $1.125 million
12. 19-12
After Tax WACC
Example - Sangria Corporation - continued
The company would like to invest in a perpetual crushing machine with
cash flows of $1.731 million per year pre-tax. Given an initial investment
of $12.5 million, what is the value of the machine?
C1
NPV = C0 +
r−g
1.125
= −12.5 +
.09
=0
13. 19-13
After Tax WACC
Example - Sangria Corporation – continued
Perpetual Crusher project
Balance Sheet - Perpetual Crusher (Market Value, millions)
Assets 12.5 5.0 Debt
7.5 Equity
Total assets 12.5 12.5 Total liabilities
14. 19-14
After Tax WACC
Example - Sangria Corporation – continued
Perpetual Crusher project
After tax interest = rD (1 − TC ) D = .06 × (1 − .35) × 5 = .195
Expected equity income = C − rD (1 − TC ) D = 1.125 − .195 = 0.93
15. 19-15
After Tax WACC
Example - Sangria Corporation – continued
Perpetual Crusher project
expected equity income
Expected equity return = rE =
equity value
0.93
= = .124 or 12.4%
7.5
17. 19-17
Capital Budgeting
Valuing a Business or Project
FCF1 FCF2 FCFH PVH
PV = + + ... + +
(1 + r ) (1 + r )
1 2
(1 + r ) H
(1 + r ) H
PV (free cash flows) PV (horizon value)
In this case rr = wacc
In this case = wacc
18. 19-18
Valuing a Business
Example: Rio Corporation
Latest year Forecast
0 1 2 3 4 5 6 7
1 Sales 83.6 89.5 95.8 102.5 106.6 110.8 115.2 118.7
2 Cost of goods sold 63.1 66.2 71.3 76.3 79.9 83.1 87 90.2
3 EBITDA (1-2) 20.5 23.3 24.4 26.1 26.6 27.7 28.2 28.5
4 Depreciation 3.3 9.9 10.6 11.3 11.8 12.3 12.7 13.1
5 Profit before tax (EBIT) (3-4) 17.2 13.4 13.8 14.8 14.9 15.4 15.5 15.4
6 Tax 6 4.7 4.8 5.2 5.2 5.4 5.4 5.4
7 Profit after tax (5-6) 11.2 8.7 9 9.6 9.7 10 10.1 10
8 Investment in fixed assets 11 14.6 15.5 16.6 15 15.6 16.2 15.9
9 Investment in working capital 1 0.5 0.8 0.9 0.5 0.6 0.6 0.4
10 Free cash flow (7+4-8-9) 2.5 3.5 3.2 3.4 5.9 6.1 6 6.8
PV Free cash flow, years 1-6 20.3 113.4 (Horizon value in year 6)
PV Horizon value 67.6
PV of company 87.9
19. 19-19
Valuing a Business
Example: Rio Corporation – continued - assumptions
Assumptions
Sales growth (percent) 6.7 7 7 7 4 4 4 3
75.5 74 74.5 74.5 75 75 75.5 76
13.3 13 13 13 13 13 13 13
79.2 79 79 79 79 79 79 79
5 14 14 14 14 14 14 14
Tax rate, percent 35%
WACC 9%
Long term growth forecast 3%
Fixed assets and working capital
Gross fixed assets 95 109.6 125.1 141.8 156.8 172.4 188.6 204.5
Less accumulated depreciation 29 38.9 49.5 60.8 72.6 84.9 97.6 110.7
Net fixed assets 66 70.7 75.6 80.9 84.2 87.5 91 93.8
Depreciation 3.3 9.9 10.6 11.3 11.8 12.3 12.7 13.1
Working capital 11.1 11.6 12.4 13.3 13.9 14.4 15 15.4
20. 19-20
Valuing a Business
Example: Rio Corporation – continued
FCF = Profit after tax + depreciation + investment in fixed assets
+ investment in working capital
FCF = 8.7 + 9.9 – (109.6 - 95.0) – (11.6 - 11.1) = $3.5
million
21. 19-21
Valuing a Business
Example: Rio Corporation – continued
3.5 3.2 3.4 5 .9 6.1 6.0
PV(FCF) = + + + + +
1.09 (1.09 ) 2
(1.09) (1.09) (1.09) (1.09)
3 4 5 6
= 20.3
22. 19-22
Valuing a Business
Example: Rio Corporation – continued
FCFH +1 6.8
Horizon Value = PVH = = = 113.4
wacc − g .09 − .03
1
PV(horizon value) = ×113.4 = $67.6
(1.09) 6
23. 19-23
Valuing a Business
Example: Rio Corporation – continued
PV(business) = PV(FCF) + PV(horizon value)
= 20.3 + 67.6
= $87.9 million
24. 19-24
WACC vs. Flow to Equity
– If you discount at WACC, cash flows have to
be projected just as you would for a capital
investment project. Do not deduct interest.
Calculate taxes as if the company were all-
equity financed. The value of interest tax
shields is picked up in the WACC formula.
25. 19-25
WACC vs. Flow to Equity
– The company's cash flows will probably not be forecasted
to infinity. Financial managers usually forecast to a
medium-term horizon -- ten years, say -- and add a
terminal value to the cash flows in the horizon year. The
terminal value is the present value at the horizon of post-
horizon flows. Estimating the terminal value requires
careful attention, because it often accounts for the
majority of the value of the company.
26. 19-26
WACC vs. Flow to Equity
– Discounting at WACC values the assets and
operations of the company. If the object is to
value the company's equity, that is, its common
stock, don't forget to subtract the value of the
company's outstanding debt.
27. 19-27
Tricks of the Trade
What should be included with debt?
– Long-term debt?
– Short-term debt?
– Cash (netted off?)
– Receivables?
– Deferred tax?
28. 19-28
After Tax WACC
Preferred stock and other forms of financing
must be included in the formula
D P E
WACC = (1 − Tc) × rD + × rP + × rE
V V V
29. 19-29
After Tax WACC
Example - Sangria Corporation - continued
Calculate WACC given preferred stock is $25 mil of total equity and
yields 10%.
Balance Sheet (Market Value, millions)
Assets 125 50 Debt
25 Preferred Equity
50 Common Equity
Total assets 125 125 Total liabilities
50 25 50
WACC = (1 − .35) × .08 + × .10 + × .146
125 125 125
= .1104
= 11.04%
30. 19-30
Tricks of the Trade
How are costs of financing determined?
– Return on equity can be derived from market data
– Cost of debt is set by the market given the specific
rating of a firm’s debt
– Preferred stock often has a preset dividend rate
31. 19-31
WACC & Debt Ratios
Example continued: Sangria and the Perpetual Crusher
project at 20% D/V
Step 1 – r at current debt of 40%
r = .06(.4) + .124(.6) = .0984
Step 2 – D/V changes to 20%
rE = .0984 + (.0984 − .06)(.25) = .108
Step 3 – New WACC
WACC = .06(1 − .35)(.2) + .108(.8) = .0942
32. 19-32
After Tax WACC
Example - Sangria Corporation - continued
34. 19-34
Investment & Financing Interaction
Adjusted Cost of Capital
(alternative to WACC)
M&M Formula --> ADR = r (1 - Tc L )
L = Debt / Value
r = Cost of equity @ all equity
Tc = Corp Tax Rate
alternative to WACC (almost same results)
35. 19-35
Investment & Financing Interaction
Adjusted Cost of Capital
(alternative to WACC)
Miles and Ezzell
1 +r A
WACC = r − LrDTc
1+ r
D
36. 19-36
Capital Project Adjustments
1. WACC
2. Adjust the Discount Rate
Modify the discount rate to reflect capital
structure, bankruptcy risk, and other factors.
1. Adjust the Present Value
Assume an all equity financed firm and then
make adjustments to value based on
financing.
37. 19-37
Adjusted Present Value
APV = Base Case NPV
+ PV Impact
Base Case = All equity finance firm NPV
PV Impact = all costs/benefits directly
resulting from project
38. 19-38
Adjusted Present Value
example:
Project A has an NPV of $150,000. In order
to finance the project we must issue stock,
with a brokerage cost of $200,000.
39. 19-39
Adjusted Present Value
example:
Project A has an NPV of $150,000. In order to
finance the project we must issue stock, with a
brokerage cost of $200,000.
Project NPV = 150,000
Stock issue cost = -200,000
Adjusted NPV - 50,000
don’t do the project
40. 19-40
Adjusted Present Value
example:
Project B has a NPV of -$20,000. We can
issue debt at 8% to finance the project. The
new debt has a PV Tax Shield of $60,000.
Assume that Project B is your only option.
41. 19-41
Adjusted Present Value
example:
Project B has a NPV of -$20,000. We can issue
debt at 8% to finance the project. The new debt
has a PV Tax Shield of $60,000. Assume that
Project B is your only option.
Project NPV = - 20,000
Stock issue cost = 60,000
Adjusted NPV 40,000
do the project
42. 19-42
Adjusted Present Value
Example – Rio Corporation APV
Latest year Forecast
0 1 2 3 4 5 6 7
10 Free cash flow (7+4-8-9) 2.5 3.5 3.2 3.4 5.9 6.1 6 6.8
PV Free cash flow, years 1-6 19.7
Pv Horizon value 64.6
Base-case PV of company 84.3
Debt 51 50 49 48 47 46 45
3.06 3 2.94 2.88 2.82 2.76
1.07 1.05 1.03 1.01 0.99 0.97
PV Interest tax shields 5
APV 89.3
Tax rate, percent 35%
Opportunity cost of capital 9.84%
WACC (To discount horizon
value to year 6) 9%
Lomg term growth forecast 3%
Interest rate (years 1-6) 6%
After tax debt service 2.99 2.95 2.91 2.87 2.83 2.79
43. 19-43
Adjusted Present Value
Example – Rio Corporation APV - continued
APV = Base case NPV + PV(Intere st tax shields)
= 84.3 + 5.0 = $89.3million