Scar Point Power

R real

Purchasing power

Inflation

Project Cash Flow Process

EBIT
Tax (EBIT x Tax Rate)
EBIAT (EBIT - Tax)
OCF (EBIT + Depreciation)

Capx

Book Value (Purchase - Depreciation)
Tax again ((Sale - BV) x Tax))
Capx end (Sale - Tax)

NWC (CA - CL)

Project Cash Flow (OCF + Capx + NWC)

Reduce/Increase Sales OCF

Add to revenue

Cap x at certain time

Book value x Years

“payments will grow forever”

perpetuity

“today”

plug years in for n

g

annual rate

R

expected return

“indefinitely”

perpetuity

Preferred Stock

Perpetuity

Common Stock

Perpetuity

CAPM Portfolio Steps

1) Multiply every price by shares
2) Add all shares together
3) Individually, step 1 / step 2
4) Individually, step 3 x Betas
5) Add all step 4
6) Featured formula

Market Risk Premium

ER (expected return)
R (risk free rate)
RP (Risk Premium)

Individual Risk Premium

B (Market risk premium)
RP (Risk Premium)

Alternative Investment

W (beta)
Rrf (risk free rate)
Rmkt (market expected return)

YTM

R

C

Coupon

M

annual, semiannual, quarterly, or monthly

n

Years

Cash Flows, Payback Period

1) You start with a negative version of what’s been paid
2) Go down the cash flows adding each year until you get it fully paid back (0)
3) It should land between 2 years
4) Divide the value you got from right before you made it to 0 by the last cash flow
5) Multiply this value by (max year - min year)
6) Add it to the min year
7) If it gets paid back before payback period accept the project

Find holding period

Pt (selling)
Pt-1 (purchasing)
CF (n x m x money)

Annualize the holding period

Rhp (holding period)