Limited Service Broker
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-Commissions: Medium
-Liquidity: Medium
-Investment Options: Many
-Advice: Self-driven
What drives the risk of a firm? Why is BETA bigger for some firms than others?
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, 1) Cyclical Revenues: revenues move with economy
-correlated with the market
-↑ β, ↑ Cyclical Revenues
2) Operating Leverage: % of fixed costs in your business
-↑ fixed costs, ↑ σ stock returns
-↑ fixed costs, ↑ β
3) Financial Leverage: % of debt in your capital structure
How do we depreciate a fixed assets?
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First, we need a depreciable basis.
The depreciable basis is the dollar amount that can be used to figure
annual depreciation expenses. It typically equals the purchase price of the
fixed asset plus any depreciation and installation costs.
NOTE: FOR FINANCIAL STATEMENTS, FIRMS WOULD SUBTRACT OUT
SALVAGE VALUE FOR THE DEPRECIABLE BASIS. FOR TAX LIABILITY AND
CASH FLOW ANALYSIS, WE DO NOT REMOVE THE SALVAGE VALUE
The typical firm will have many on-going projects that are
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, 1) generating their own cash flow streams
2) capable of using each others fixed assets
we need to consider additional details and move to an incremental
approach to cash flow estimation
The spot rate of exchange describes:
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-exchange rate in the moment
To estimate the value of a firm...
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we need the firm's Free Cash Flow (FCF)
V (value of the firm)
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D+E+P
Investment in Working Capital
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- Balance sheet (one moment in time)
- Working Capital = NWC
- NWC = current assets - current liabilities
- Current Assets = inventory, A/R, Cash
↑ current assets, ↓ FCF
- Current Liabilities = N/P, A/P, Accruals
*N/P not relevant b/c it is investor money; we pay interest
↑ current liab., ↑ FCF
- Investment in working capital = Δ NWC (usually one year)
Δ NWC= NWC(today) - NWC (tomorrow)
Project Risk is very similar to ...
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firm risk
What is the relationship between market value and book value?
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If a firm expects that MV < BV, then it expects to have claimed too little in
depreciation expenses by the end of the project and it expects to receive a
tax credit from the government at project termination
If a firm expects that MV > BV, then it expects to have claimed too much in
Give this one a try later!
-Commissions: Medium
-Liquidity: Medium
-Investment Options: Many
-Advice: Self-driven
What drives the risk of a firm? Why is BETA bigger for some firms than others?
Give this one a try later!
, 1) Cyclical Revenues: revenues move with economy
-correlated with the market
-↑ β, ↑ Cyclical Revenues
2) Operating Leverage: % of fixed costs in your business
-↑ fixed costs, ↑ σ stock returns
-↑ fixed costs, ↑ β
3) Financial Leverage: % of debt in your capital structure
How do we depreciate a fixed assets?
Give this one a try later!
First, we need a depreciable basis.
The depreciable basis is the dollar amount that can be used to figure
annual depreciation expenses. It typically equals the purchase price of the
fixed asset plus any depreciation and installation costs.
NOTE: FOR FINANCIAL STATEMENTS, FIRMS WOULD SUBTRACT OUT
SALVAGE VALUE FOR THE DEPRECIABLE BASIS. FOR TAX LIABILITY AND
CASH FLOW ANALYSIS, WE DO NOT REMOVE THE SALVAGE VALUE
The typical firm will have many on-going projects that are
Give this one a try later!
, 1) generating their own cash flow streams
2) capable of using each others fixed assets
we need to consider additional details and move to an incremental
approach to cash flow estimation
The spot rate of exchange describes:
Give this one a try later!
-exchange rate in the moment
To estimate the value of a firm...
Give this one a try later!
we need the firm's Free Cash Flow (FCF)
V (value of the firm)
Give this one a try later!
D+E+P
Investment in Working Capital
, Give this one a try later!
- Balance sheet (one moment in time)
- Working Capital = NWC
- NWC = current assets - current liabilities
- Current Assets = inventory, A/R, Cash
↑ current assets, ↓ FCF
- Current Liabilities = N/P, A/P, Accruals
*N/P not relevant b/c it is investor money; we pay interest
↑ current liab., ↑ FCF
- Investment in working capital = Δ NWC (usually one year)
Δ NWC= NWC(today) - NWC (tomorrow)
Project Risk is very similar to ...
Give this one a try later!
firm risk
What is the relationship between market value and book value?
Give this one a try later!
If a firm expects that MV < BV, then it expects to have claimed too little in
depreciation expenses by the end of the project and it expects to receive a
tax credit from the government at project termination
If a firm expects that MV > BV, then it expects to have claimed too much in
