AFM273 Lecture Notes - Lecture 9: Sensitivity Analysis, Scenario Analysis, Capital Gains Tax

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM273
• Professor: Kenneth R Vetzal

Document Summary

I(cid:374)(cid:272)(cid:396)e(cid:373)e(cid:374)tal ea(cid:396)(cid:374)i(cid:374)gs: a(cid:373)ou(cid:374)t (cid:271)(cid:455) (cid:449)hi(cid:272)h the fi(cid:396)(cid:373)"s ea(cid:396)(cid:374)i(cid:374)gs are expected to change as result of the investment decision. Incremental ucc is determined by: t = 1: ucc1 = 0. 5 * capex, t > 1: ucct = capex * (1-(d/2)) * (1-d)^t-2. Interest expenses: when calculating capital budgeting decision, we generally do not include interest expenses, unlevered net income of project: indicate it does not include an interest expenses associated with leverage. Taxes: marginal corporate tax rate: tax rate it will pay on incremental dollar of pre-tax income, tc = fi(cid:396)(cid:373)"s (cid:373)a(cid:396)gi(cid:374)al (cid:272)o(cid:396)po(cid:396)ate ta(cid:454) (cid:396)ate. Unlevered net income calculation: unlevered net income = ebit * (1- tc , = (revenues costs cca) * (1- tc ) Sunk cost: any unrecoverable cost for which the firm is already liable. Free (cid:272)ash flo(cid:449): i(cid:374)(cid:272)(cid:396)e(cid:373)e(cid:374)tal effe(cid:272)t of a p(cid:396)oje(cid:272)t o(cid:374) the fi(cid:396)(cid:373)"s a(cid:448)aila(cid:271)le (cid:272)ash.