Finance Discussion Problems

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Last updated 3:29 PM on 4/23/26
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18 Terms

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NPV Calculation

=(NPV(WACC,(Cash Flows First:Last))+Total Investment

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IRR

=IRR(Cash Flows First:Last)

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MIRR

=MIRR(Cash Flows First:Last,,WACC)

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PI

=(NPV/(-Investment))+1

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How to know which one to pick based on NPV

Higher NPV

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Difference between IRR and MIRR

  • IRR assumes all cash flows will be reinvested at IRR Rate (aggressive assumption)

  • MIRR assumes all cash flows will be reinvested at the WACC (more conservative assumption)

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Cash Flow Framework

Year (list)

Investments:

  1. Equipment (-)

  2. Change in NWC (-)

  3. Total

Operations:

  1. Revenue

  2. Costs (-)

  3. Depreciation (-)

  4. EBIT

  5. Taxes (-)

  6. Net Income

  1. Depreciation

  2. Other (cannibalization) (-)

  3. Total

Terminal:

  1. Change in Net Working Capital

  2. Salvage Value

  3. Total

Total Cash Flows

Change in NWC:

  1. Inventory (-)

  2. Accounts Payable

  3. Receivables (-)

  4. Net

Change in NWC

After Tax Salvage

  1. Proceeds

  2. Less Book Value

  3. Profit/Loss

  4. Taxes

  5. After Tax Cash

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Two types of risk

  1. Business Risk: measured in WACC

  2. Forecasting Risk: measured through sensitivity analysis of forecasting estimates.

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EAB

=PMT(WACC,# of years, -NPV)

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Debt Book Value

Face Value + face Value

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Equity Book Value

Shares * book value share price

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Total BV

Debt BV + Equity BV

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Cash Flow Framework Part 1

Year (list)

Investments:

  1. Equipment (-)

  2. Change in NWC (-)

  3. Total

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Cash Flow Framework Part 2

Operations:

  1. Revenue

  2. Costs (-)

  3. Depreciation (-)

  4. EBIT

  5. Taxes (-)

  6. Net Income

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Cash Flow Framework part 3

  1. Depreciation

  2. Other (cannibalization) (-)

  3. Total

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Cash Flow Framework Part 4

Terminal:

  1. Change in Net Working Capital

  2. Salvage Value

  3. Total

Total Cash Flows

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Cash Flow Framework Part 5

Change in NWC:

  1. Inventory (-)

  2. Accounts Payable

  3. Receivables (-)

  4. Net

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Cash Flow Framework Part 6

After Tax Salvage

  1. Proceeds

  2. Less Book Value

  3. Profit/Loss

  4. Taxes

  5. After Tax Cash