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Study Session 10: Corporate Finance: Corporate Governance, Capital Budgeting, and Cost of Capital

free cash flow calculation

I want to invest in a new company and so I want to calculate the free cash flow and hence the IRR of it

I use the typical formula in which EBIT *(1-T)+depreciation-change in working capital- capex = free cashflow

But in one of the cost item of this company, it is a management fee (assume it is $100) which is payable to me every year as the new shareholder of this company

and how should this management fee be accounted for? should it add back into the above free cashflow formula? 

thank you for any advice

Solving questions about flotation costs of equity and NPV

Is the only way to calculate NPV by hand, by discounting each individual cash flow one by one, totaling, and subtracting the initial amount of equity that was raised? Click this link to view an answer explanation for a module quiz from Kap; if anyone can explain how to do this on the TI BA II I would appreciate it:

Calculate WACC with no debt. But, what about Current Liabilities?

Hey guys.

I’m studying Corporate Finance and I’m thinking about this problem.

Say, a company has 0 debt, no bonds, they borrow nothing… so, we will calculate WACC = (E/V) x Re    right?

But, they have current liabilities. So what now? E/V = E / (Equity + current liabilities) ? Or something?

reading 35 - part practice question 22

Hi, I am having some issues calculating the cost of debt for the below :

Currently outstanding bonds     $2.4 million five-year bonds, coupon of 12.5 percent, with a market value of $2.156 million

The solution presented in the curriculum is as follows :

For debt: FV = 2,400,000; PV = 2,156,000; n = 10; PMT = 150,000

Solve for i. i = 0.07748. YTM = 15.5%

However , I am not getting the 0.07748 but a negative rate.

please help :)

CFA L1 Question about the questions on the exam!

Hello guys, a friend of mine ,giving the l1 exam on June, asked me about the questions of l1. He asked if a question could be a combination of different study sessions,

For example.If i have to calculate the growth rate on Corp Finance which is  (1-D/EPS)xROE and the ROE is not given but i have the following information   ……Net Income = x     and AVG Equity = y   so ROE = x/y………..But this ratio is given on FRA and not on Corp Finance. So is each section a thing of its own or there can be questions that you have to combine knowledge from many study sessions?

Thank you

Cost of Capital Question (EOC Reading 35, Q12)

This is the answer given in the solutions for EOC Reading 35, Q12:

B is correct.

  • Capital structure:

    Market value of debt: FV = $10,000,000, PMT = $400,000, N = 10,

    I/YR = 13.65%. Solving for PV gives the answer $7,999,688  (I can’t seem to get PV equal to this)

    Market value of equity: 1.2 million shares outstanding at $10 = $12,000,000

    Market value of debt

Risk-Adjusted Profitability Measures (RAPM) questions..

Not really a CFA topic i guess but this is the best forum i can find for me to ask question, so thanks a lot! smiley

For anyone who studied about Financial Intermediation before. (Might wanna read my notes under each question first to understand my point of view)

With regards to commercial banks,

AAPL's exposure to the market

Hello everyone,

I ran across an article explaining why and how significant AAPL’s earnings expectations are to the market, I have one question:

The article says AAPL has a 3 month Beta of 0.76, 0.82, and 0.78 with respect to the indexes of DJIA, Nasdaq 100, and S&P 500. The article ends with saying the markets exposure to AAPL is crucial.

My question is, isnt the article supposed to say AAPL’s exposure to the market? As for example, if AAPL moves up 1%, the market wont move 0.76%, 0.82%, or 0.78%. Or am I mistaken?