Tylerdurden Wrote: ------------------------------------------------------- > Can someone please email it to me too please? > > dafonz at gmail.com > > Question (I’mgoing off the schweser here)… in > figure 2 on page 110 (2008 edition), there is a > depreciation expense of 75 under the today column. > In figure 6 after everything is converted to > nominal, there’s no depreciation expense there, > but in figure 7 it magically appears again. > > WTF? 3 Posts, NICE!! Here come the lurkers / free-loaders out of the woodworks.
hahaha! Black Swan…everyone has to start posting SOMEWHERE! ;>) Even little ol’ you had 3 posts at some point…I just found out about this site so unfortunately I only have a couple 2 posts myself. Am i a bad person b/c of it? ;>(
Please let this poor old thread die. I’ve had feedback on what I originally sent and it was a little too detailed and not that helpful. With the amount of attention this thing has received I think it’s not warranted. Rec’s for understanding this. 1. Follow the steps that Schweser has. 2. Get rid of the NWC because that is where everyone has the most difficulty with. 3. Practice this problem a few times with the Schweser as well as the CFAI material. Other than that it’s still just practice. What I sent out helped me but because that’s my style and how I learn. Write out the steps, practice, and repeat. Don’t take any offense anyone but please for anyone that already has this, don’t send it on because I don’t think it’s needed.
^ this was one year ago. I don’t think they follow this thread anymore, unless any retakers have this and are willing to share.
Long story short for this LOS: Your job is to calculate both FCF in nominal and real terms: FCF = NOPLAT + Depr - WCInv - FCInv and then discount it using the appropriate discount rate using DCF model. Depr does not need any adjustment. (So you compute nominal Depr from nominal terms, real Depr from real terms.) Begin with FCInv, which is given by: FCInv = Change in gross PP&E + Depr Calculate real FCInv first. Nominal FCInv = real FCInv x Inflation Index. Inflation Index = (1+I_{1}) x (1+I_{2}) … x (1+I_{k}), where I_{j} is the inflation for the j-th period. Then calculate NOPLAT: NOPLAT = EBITA - Tax Expense The key here is that real tax depends on nominal tax: real tax = nominal tax / Inflation Index At last, calculate WCInv: WCInv = Change in NWC Similar to tax expense, real WCInv is dependent on nominal WCInv: real WCInv = nominal WCInv / Inflation Index Calculate FCF for each period into your calculator using CF function, enter the appropriate discount rate (real WACC for real FCF, nominal WACC for nominal FCF). One vignette down on the exam!
^ = money. In real and nominal terms. Practice is key for this topic.
quick EM quiz - which ratios are correctly calculated between nominal and real?
NWC / Revenue.
eltia Wrote: ------------------------------------------------------- > Long story short for this LOS: > > Your job is to calculate both FCF in nominal and > real terms: > > FCF = NOPLAT + Depr - WCInv - FCInv > > and then discount it using the appropriate > discount rate using DCF model. > > Depr does not need any adjustment. (So you > compute nominal Depr from nominal terms, real Depr > from real terms.) > > Begin with FCInv, which is given by: > > FCInv = Change in gross PP&E + Depr > > Calculate real FCInv first. Nominal FCInv = real > FCInv x Inflation Index. > > Inflation Index = (1+I_{1}) x (1+I_{2}) … x > (1+I_{k}), where I_{j} is the inflation for the > j-th period. > > Then calculate NOPLAT: > > NOPLAT = EBITA - Tax Expense > > The key here is that real tax depends on nominal > tax: > > real tax = nominal tax / Inflation Index > > At last, calculate WCInv: > > WCInv = Change in NWC > > Similar to tax expense, real WCInv is dependent on > nominal WCInv: > > real WCInv = nominal WCInv / Inflation Index > > Calculate FCF for each period into your calculator > using CF function, enter the appropriate discount > rate (real WACC for real FCF, nominal WACC for > nominal FCF). One vignette down on the exam! Wow. What’s your favorite drink? I owe you one. lol
Thank you so much eltia, for this EM session. I have read that reading 2-3 times and just can’t get that to stick.
Bookmarked to be printed
CLT2 Wrote: ------------------------------------------------------- > Wow. What’s your favorite drink? I owe you one. > lol Starbucks Mocha Frappuccino. 
It’s alright. This LOS is such a pain in the butt, so I thought I would share some experience. So let’s hope we won’t see it on D-Day.
eltia Wrote: ------------------------------------------------------- > NWC / Revenue. yeppers