Sign up  |  Log in

Study Session 7: Corporate Finance

Depreciation tax saving with increasing inflation

From CFAI book:

“Inflation reduces the value of depreciation tax savings (unless the tax system adjusts depreciation for inflation). The effect of expected inflation is captured in the discounted cash flow analysis. If inflation is higher than expected, the profitability of the investment is correspondingly lower than expected.”

Can somebody plz show numerically how inflation reduces value of depreciation tax saving??

CFAI - Corporate Finance - Reading 20 - EOC #34

To calculate the $WACC in this question, it looks like the CFA Curriculum is summing beginning debt and equity. The question is asking for economic profit in year 1 and is using debt and equity totals from year 0. Can someone please confirm for me that $WACC is equal to WACC% multiplied by beginning capital invested? The curriculum seems to be a bit unclear here. Thanks!

CFAI - Corporate Finance - Reading 20 - Table 5

I am going through this reading and am wondering why average book value is calculated dividing by 2 as opposed to 5 (the project’s life). Can anyone shed some light on this? Thanks!

Reading 22 Curriculum #8

Could anyone clarify the answer to this question?

the question that is related to if PAT pays a 1.5 dividend, Chan’s new share ownership after reinvesting….

Corporate Finance

Hi, I am having some trouble in understanding “Capital Charge”. I do not quite understand what does it mean in itself and how does it impact residual income. This is the first time I am hearing this term.

I would appreciate if anyone can help me understand it.

Thanks!

Loan by fixed vs floating rate bond

Hey i hope this is the right place to post this,  I’m having trouble understanding how to calculate this: 

We are to find the cheapest borrowing option between: 

1:issuing a bond at 7% fixed rate for 5 years, twice a year
2: issuing a floating rate bond for 5 years at central bank rate plus six hundred basis points, the payments are divided into 4 times a year

We are to assume the central bank rate is fifty basispoints and will increase by 25 every year for four years

Amortization of set up costs

Hi guys,

If I set up a company or partnership, and incur set up costs, do I get to choose how and how much to amortize these costs, over how many years, and the amount to write off or amortize, or are they accounting guidelines/conventions I have to adhere?

I know that taxation rules regarding amortization may differ from jurisdiction to jurisdiction, but what about the accounting treatment? Do we, as promoters of the company or partnership, have discretion over that?

Regards,

TNOCF is driving me nuts!!!

Knowing the formula hasnt worked for me. Does anyone know what I’m doing wrong:

(550000) + [$187,000/1.12^5] + [$232,500/1.12^5] = $256,020

I cannot figure out how the $187,000 discounted at the rate above is $674,093…

My brain is tired…

Mergers and Acquisitions

Hello,

In the M&A chapter, I have trouble understanding the difference between

1) Leverage Buy-Out (LBO)

2) Leveraged Recapitalization

3) Share repurchase 

Can someone shed the light between them?

Thank you much!

contradiction in share repurchase

direct negotiation : purchase shares from major shareholder at premium over market price. 

this is the solution for  topic test :  Research showed that 45% of private repurchases between 1984 and 2001 were actually made at discounts, indicating that many direct negotiation repurchases are generated by the liquidity needs of large investors who are in a weak negotiating position.

which one is correct?