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Plan for Today

Plan for Today. Hand in case Administration & Questions Review of last class Case: Tartempion: The incremental approach Tax shields -- Capital Cost Allowance (CCA) Case: Fonderia Di Torino S.P.A. Conclusion and preparation for next week. Review of Last Week.

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Plan for Today

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  1. Plan for Today • Hand in case • Administration & Questions • Review of last class • Case: Tartempion: The incremental approach • Tax shields -- Capital Cost Allowance (CCA) • Case: Fonderia Di Torino S.P.A. • Conclusion and preparation for next week

  2. Review of Last Week • We study the long-term decisions of a financial manager: • How to use funds: • What projects to undertake to maximize firm value • How much dividends to pay • Where to get funds: equity and debt • Key concepts in financial decision making: • Time value of money • Risk and return • Use NPV to value investments: • Use cash flows, not accounting numbers • Focus on incremental cash flows

  3. Course in a Nutshell The Market Capital Structure The Firm Capital Budgeting Stockholders Dividends Cash flow Equity Financial Manager Projects Debt Bondholders Investments Interest Corporate Taxes Personal Taxes Government

  4. What we know now • Capital investments generate tax effects over time • Use PVCCATS formula to account for tax shields • Challenges in NPV analysis • Finding the relevant incremental cash flows • Include all effects of a project and compare with the status quo • Dealing with inflation • Match real CFs with real rates and nominal CFs with nominal rates • Comparing equipment with different lives • Use Equivalent Annual Cost or extend to same life • NPV analysis incorporates most of Buffet’s investment principals

  5. Next Week • Quiz • Start of class • Material from weeks 1 and 2 • Readings: Chapters 9 and 11 • Case: The Investment Detective • Read through only

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