Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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In the discounted cash flow (DCF) method, which of the following is the correct formula for calculating Unlevered
A)EBIT (1-tax rate) +
B)EBIT (1-tax rate) – D&A – \Delta NWC – CapEx
C)EBIT (1-tax rate) + D&A – \Delta NWC + CapEx
D)EBIT (1-tax rate) + D&A – \Delta NWC – CapEx E)EBIT (1-tax rate) – D&A + \Delta NWC + CapEx
Transcribed Image Text:In the discounted cash flow (DCF) method, which of the following is the correct formula for calculating Unlevered Free Cash Flows (UFCF)? A) EBIT (1-tax rate) + Depreciation and Amortization (
D&A) + Investment in Net Working Capital (\Delta NWC) + Capital Expenditure (CapEx) B)EBIT (1-tax rate) - D&A -\Delta NWC-CapEx C)EBIT (1-tax rate) + D&A -\Delta NWC + CapEx D
)EBIT (1-tax rate) + D&A -\Delta NWC - CapEx E)EBIT (1-tax rate) - D&A + \Delta NWC + CapEx
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- The statement of cash flows reports the cash proceeds from issuing a bond as a cash flow from Select one: a. Investing activities. b. Asset activities. c. Operating activities. d. Financing activities. The primary advantage of making investment decisions based on the net present value method, instead of the payback period, is that the net present value method Select one: a. Considers depreciation expense as part of the investment’s cash flows. b. Is easier to compute then the payback period. c. Conforms to generally accepted accounting principles. d. Factors the time value of money in its calculations. A firm with an investment opportunity whose internal rate of return was lower than its cost of capital would Select one: a. Use the payback period method to make the investment decision. b. Possibly make the investment. c. Make the investment. d. Not make the investment.arrow_forwardDirection: Define, draw the cash flow diagram, and write the general formula of the following: ANNUITY 1. Ordinary Annuity a) Sum/Future of Ordinary Annuity b) Present Worth of Ordinary Annuity 2. Annuity Due 3. Deferred Annuityarrow_forwardAll parts detailed or skiparrow_forward
- 3. Which of the three types of cash flows could best be desribed as cash-basis net income? Operating Investing Financingarrow_forwardb. Disregard the assumptions in Part a. What is the depreciable basis? What are the annual depreciation expenses? c. Calculate the annual sales revenues and costs (other than depreciation). Why is it important to include inflation when estimating cash flows? d. Calculate annual net operating profit after sales (NOPAT). Then calculate the operating cash flows.arrow_forward3. Which of the three types of cash flows could best be desribed as cash-basis net income? Operating Investing Financingarrow_forward
- How can we show mathematically that the two approaches cash flow from operation and net income are identical?arrow_forwardMatch each of the following term with the corresponding description. Not all descriptions will be used._____ Operating activities_____ Indirect method_____ Cash equivalent_____ Investing activities_____ Direct method_____ Financing activitiesA. Measures the percent of net income that comes from high-margin products.B. Includes such events as the receipt of dividends and interest on investment assets.C. Includes assets that are very liquid and have original maturities of three months or less.D. The percent of total debt represented by a company's cash account.E. These activities include only purchases made with borrowed funds.F. Where cash flows from operating activities are calculated by converting each revenue and expense item from an accrual to a cash basis.G. This ratio multiplies net income by the average rate of interest the company receives on its investments.H. This ratio uses net income instead of operating cash flow to Analysis a company's ability to finance the cost of its…arrow_forwardThe two approaches to reporting cash flows provided by operating activities are the a. the liquidity and profitability methods. b. the basic and standard methods. c. direct and indirect methods. d. the gross margin and contribution margin methods.arrow_forward
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