Grace period - 1 to 2 years; do not pay the PRINCIPAL but pay INTEREST

Interest payment for the first two years ()

How income taxes are computed:
o Income tax payable
Point of reference EBIT
Unallowable percentage
Interest income treasury bills, bonds, account deposits
Only 67% is subjected to taxes
Income tax cash and non-cash
How dividends are computed?
Categories of Cash flows
o Operations/Operating Activities started with EBIT
o Investments and Financing
Supplier receivable good for 30 days
Minimum cash requirement percentage that would serve as buffer for future
purposes
DCF basis for NPV and IRR
o Cash Budgeting Analysis
PIRR, Equity IRR, NPV, Payback Period
Capital Budgeting
o Decision-making process with respect to investments in fixed assets
o Involves incremental cash flows with investment proposals and
evaluation those proposed investments
o Critical Elements
o Free Cashflow cash flow in excess of that required to fund all projects
that have positive NPVs when discounted at the relevant cost of capital
Cost of capital cost of borrowing (interest)
Debt (interest expense) and equity (opportunity cost)
Payments, investments have already been taken care of
o IRR what rate of return does this project earn?
Discount rate that equates the present value of the projects
cash
Required Rate of Return
Based on shareholders required rate of return /board
policy
Based on industry standards
Based on other indices/metrics (interest rate if you
borrow)
o NPV equal to the
o Payback Period number of years needed to recover the initial cash
outlay
o Expectation is that youd go beyond the horizon, match with the life of
the corporation (50 years)
o Terminal Value considers the cash flows beyond 30 years and bring it
to the present 30 year
Using a multiplier 7 (Rule of Thumb)
o Hurdle Rate could also be the required rate of return

Why four levels?

NPVs are positive given the different levels