MGAB03H3 Lecture Notes - Lecture 11: Payback Period, Net Present Value, Nopat
24 Jun 2018
School
Department
Course
Professor
Moral Hazard: one party taking very high risk recklessly,
knowing that if something doesn’t turn out, they will not suffer
the consequences and somebody else will pay the price. (Trader
société generale)
3 E's:
Effectiveness: do you achieve your objectives/goals
-
Efficiency: Input vs Output
-
Economy: To comply and/or follow the rules and guidelines.
-
Net working capital = Current assets - current liabilities
-
EBITDA = Earnings before investment taxes depreciation
amortization
-
Long term Assets + Net working capital = Long term
liabilities and Shareholder's equity
-
Residual Income= Net Operating profit before taxes - RRR
(%) x Investment
-
EVA= Net Operating profit after taxes - WACC (weighted
average cost of capital x Investment (Total assets - current
liabilities)
-
Weight
Rate
Tax @
25%
Total
Debt
400,000
40%
5 %
(1-0.25)
0.015
New Shares 500,000 50% 12 % 1 0.06
Retained
earnings
100,000 10% 10 % 1 0.01
Total 1,000,00
0
100% 0.085
Question 18 final exam
NPV1.
Net initial investment (72k + 0 + 18k) = 80k1)
PV of annual benefits
Incremental revenue 31000a.
Incremental cost. (14000)b.
Increment OI 17k x PVIFA (7.10%) = 77584,60c.
2)
PV of Terminal Value (9k + 8k = 17000x PVIF (7.10%) =
7692.50
NET PV = 52777.10
3)
(80000) + x(4.5638 +7692.5 = 7692.5 0)2.
X = 15843.70
Payback period: 80000/17000=4.7059 years3.
AARR=ROI (include depreciation expense)4.
17000 - ((72000-9000)/7)!"###$%&'((()*(((
&+
,#### -./0 1.20
EVA= NOPAT - WACC x investment
= (17000-9000) x (1-0.4) - WACC x 80000
= 4800 - 6560 = -1760
5.
WACC: Weight Rate After tax
Debt = 50% 6% 1-0.4 = 0.018
RE= 30% 12% 1 = 0.036
N, Shares=
1.
Before investment
Residual income NOPBT - RRR x investment
= 60000/(1-0.4)
= 100,000 -12% x 320,000
= 100,000 - 38,400
= 61600
AFTER invesmtent
Residual income 100,000 + (17000-9000) - RRR x investment
= 108,000 - 48,000
= 60,000
On average the cost to raise 1.000.000
Is 8.5%, you will pay on average $85,000
In interests
Lecture 11 - Chapter 18
Tuesday, June 12, 2018
4:20 PM
Document Summary
Moral hazard: one party taking very high risk recklessly, knowing that if something doesn"t turn out, they will not suffer the consequences and somebody else will pay the price. (trader soci t generale) Economy: to comply and/or follow the rules and guidelines. Net working capital = current assets - current liabilities. Ebitda = earnings before investment taxes depreciation amortization. Long term assets + net working capital = long term liabilities and shareholder"s equity. Residual income= net operating profit before taxes - rrr (%) x investment. Eva= net operating profit after taxes - wacc (weighted average cost of capital x investment (total assets - current liabilities) Is 8. 5%, you will pay on average ,000. Net initial investment (72k + 0 + 18k) = 80k. Increment oi 17k x pvifa (7. 10%) = 77584,60. Pv of terminal value (9k + 8k = 17000x pvif (7. 10%) = = (17000-9000) x (1-0. 4) - wacc x 80000. Residual income 100,000 + (17000-9000) - rrr x investment.
