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corp finance
corp
26
Accounting
Pre-School
05/13/2013

Additional Accounting Flashcards

 


 

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Term
capital budgeting Capex
Definition
what long term assets to aquire vs. what not
Term
npv=0
Definition
means covers wacc
any thing more NPV = X x/# of shares = Rise in Stock $
Term
Feds goal
Definition
get companies to engange in cap ex grow/hire w/o inflation
Term
WACC or IRR
Definition
Wacc is better assumption for NPV
Term
MIRR =
Definition
IRR if you reinvest at wacc
Term
Mutually Exlusive vs Convetntion
Definition
ME = NPV, MIRR

Conv= IRR , NPV
Term
LBO analysis
Definition
more debt the better for equity holders unless cannot pay

More debt more fixed costs
Term
Private equity investment
Definition
illiquid, goal is to get out, exit strategy eventually get out cant take back investment
Term
hedge fund
Definition
usually take your money out every quarter
Term
mutual fund
Definition
alot more liquid take money out at end of day
Term
How does a PE firm turn a company around?
Definition
*1. Operational improvments (layoffs) -- EBITDA

2. sell at a higher multiple of EBITDA (usually 7 or 8)

3. Delevering- pay down principle of debt
Term
Operational improvments-- easiest way to improve IRR
Definition
increase sales
Cut costs

(ultimatly improve EBITDA)
Term
Capital Structure
Definition
minimize WACC maximize SH value
Term
what companies have large amount of Wd

and Y?
Definition
automotive, airline, coal industry (utility companies)

huge amount of infrastructure if sold increase price
Term
Modgiliani + Miller 1958
Definition
1. no income tax
2. no bankruptcy related costs
3. riskless debt
4. symetric information
Term
Modgilini + Miller 1963
Definition
1. no bankruptcy related costs
2. riskless debt
3. symetric information

seperation of lines is the PV of Tax benefits

WACC consistantly decreases
Cost of Capital increases
use as much debt, more debt lower wacc, lower wacc higher firm value
Term
Modgilini + Miller LAST
Definition
seperation shows trade off where WACC is minimized and maximized
Term
No assumptions
Definition
signaling theory of cap structure

issue debt, increase stock, c. SH happy

signal to mktplace something good is happening
Term
APV method
Definition
Adjusted present value
Term
VL =
Definition
(T*D) - PV of Bankruptcy related costs
Term
what is a statment concerning the principles underlying capital budgeting?
Definition
Cash flows should be based on Opportunity Costs
Term
which about payback period is least accurate
Definition
considers all cashflows throughout entire life of project
Term
which about NPV and IRR are Lease accurate
Definition
for mutually exlusive projets if the npv method and IRR method give conflicting rankings the analyst should use the IRR to select product
Term
Whch about NPV and IRR are lease accurate
Definition
the NPV will be posotive if the IRR is less than cost of capital
Term
based on surveys of comparable firms which of the following firms would most likely use NPV as its preferred method for evaluating capital Prjects
Definition
Large public company in US
Term
APV Finale
Definition
Unlevered firm value
+ PV of tax benefit
- PV of bankruptcy related costs
= intrinsic enterprise value
+ cash
+ non operating assets
-intrest bearing debt
- other relevant assets
= intrinsic equity value
/ # of share
= intrinsic stock value
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