Finance Ch 1-6

Annuity Present Value Equation

APV = C ((1−[1/(1+r)^t ])/r) or, APV = C ((1−Present Value Factor)/r )

Relationship between Annuity Due Value and Ordinary Annuity Value

Annuity Due Value = Ordinary Annuity(1+r)

What is the difference between marginal and average tax rate?

Average tax rate is taxable income divided by taxes paid. Marginal tax rate is the percentage of taxes you would pay if you earned one more dollar. Or put another way, what current tax bracket you are in.

Present for a Perpetuity

C/r

Assets

CA + NFA

Cash Flow Identity

CFFA = CFTC + CFTS

CFFA

Cash Flow From Assets CFFA = OCF - NCS - Change in NWC

CFTC

Cash Flow To Creditors CFFC = Interest Paid - Net New Borrowing

CFTS

Cash Flow To Stockholders CFTS = Dividends Paid - Net New Equity Raised

CA

Current Assets

What are the marginal tax rates?

0 -50k 15% 50k - 75k = 25% 75k - 100k = 34% 100k - 335k = 39% 335k - 10mil = 34% 10m - 15m = 35% 15m - 18.3m = 38% 18.3m - upward = 35%

What is the maximum marginal tax rate?

35%

Delta NWC

Delta NWC = NWC(EoY) - NWC(BoY)

Why is net income, as computed on the income statement, not cash flow?

Depreciation is a non-cash expense Interest is a financing expense

LTD

Long Term Debt

NCS

Net Capital Spending NCS = NFA(EoY) - NFA(BoY) + Dep

NCS

Net Capital Spending NFA(EoY) - NFA(BoY) + Dep

NFA

Net Fixed Assets

NWC

Net Working Capital NWC = CA - CL

OCF

Operating Cash Flow EBIT + Dep - Taxes

The goal of financial management

To maximize the market value of stock and not its book value.

Why are book and market values different?

What someone is willing to pay for something is not exactly what its worth on the books. Book value is always based on historical costs.