Capital Budgeting

I found couple of discrepencies in and schweser and CFAI. I am not sure if I am missing something or they are real. I am looking for clarification which is right approach to follow in the exam.

For ATCF, in few cases, it’s calculated using EBIT( 1 - tax rate) + D and in some cases, NI + D, is it because of the example I referrred in schweser did not have interest income on income statement but in the EBIT example the interest income was there? This is my assumption. I would like to clarify it with you guys.

Schweser claims that capital is actually begining market value of the company. By the way, to give a litle background here, Capital is used in two methods: RI and EP. However, in CFAI books, they have simply considered sales as capital. Of course, calculating capital from begining market value is pain in the neck and it would be much easier to calculate using sales. But I want to make sure I am on the right track and also would like to know why schweser has calculated that using market value. I am referring to the question set 33-38, reading 28.

For Net worth and equity, schweser has crappy way of getting using beging market value - amount owed to debt holders. That is again a pretty aweful solution to get to the amount to the debt holder only, let alone calculation for equity holders. However, CFAI simply takes Total Assets - Liabilities for net worth or equity charge, which is used in RI formula, just to let you know.

In case of Present value of equity, equity is simply taken from Cash flow statement, CFF to be very precise. But if I had followed schweser’s method. It would have been nightmare to calculate that.


I don’t know how I got all this. After reading for one more time, now everything looks okay.