Term
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Definition
| what long term assets to aquire vs. what not |
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Term
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Definition
means covers wacc
any thing more NPV = X x/# of shares = Rise in Stock $ |
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Term
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Definition
| get companies to engange in cap ex grow/hire w/o inflation |
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Term
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Definition
| Wacc is better assumption for NPV |
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Term
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Definition
| IRR if you reinvest at wacc |
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Term
| Mutually Exlusive vs Convetntion |
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Definition
ME = NPV, MIRR
Conv= IRR , NPV |
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Term
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Definition
more debt the better for equity holders unless cannot pay
More debt more fixed costs |
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Term
| Private equity investment |
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Definition
| illiquid, goal is to get out, exit strategy eventually get out cant take back investment |
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Term
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Definition
| usually take your money out every quarter |
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Term
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Definition
| alot more liquid take money out at end of day |
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Term
| How does a PE firm turn a company around? |
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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 |
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Term
| Operational improvments-- easiest way to improve IRR |
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Definition
increase sales
Cut costs
(ultimatly improve EBITDA) |
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Term
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Definition
| minimize WACC maximize SH value |
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Term
what companies have large amount of Wd
and Y? |
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Definition
automotive, airline, coal industry (utility companies)
huge amount of infrastructure if sold increase price |
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Term
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Definition
1. no income tax
2. no bankruptcy related costs
3. riskless debt
4. symetric information |
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Term
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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 |
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Term
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Definition
| seperation shows trade off where WACC is minimized and maximized |
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Term
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Definition
signaling theory of cap structure
issue debt, increase stock, c. SH happy
signal to mktplace something good is happening |
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Term
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Definition
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Term
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Definition
| (T*D) - PV of Bankruptcy related costs |
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Term
| what is a statment concerning the principles underlying capital budgeting? |
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Definition
| Cash flows should be based on Opportunity Costs |
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Term
| which about payback period is least accurate |
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Definition
| considers all cashflows throughout entire life of project |
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Term
| which about NPV and IRR are Lease accurate |
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Definition
| for mutually exlusive projets if the npv method and IRR method give conflicting rankings the analyst should use the IRR to select product |
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Term
| Whch about NPV and IRR are lease accurate |
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Definition
| the NPV will be posotive if the IRR is less than cost of capital |
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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 |
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Definition
| Large public company in US |
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Term
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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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