Finance

2 tools in the Finance and Business area.

DCF Valuation

Enterprise and equity value of a business by discounted cash flow: the projected unlevered free cash flows are discounted at the weighted average cost of capital, built from the cost of equity (CAPM) and the after-tax cost of debt or entered directly; the value beyond the projection is a terminal value by the Gordon growth model, an exit multiple, or both; net debt bridges enterprise to equity value and the share count gives a value per share against the current price. The two-way sensitivity grid of value per share against the discount rate and the terminal growth rate shows how much of the answer rests on those two assumptions.

Investment Appraisal (NPV, IRR, Payback)

Appraisal of a capital project from its cash-flow series: net present value with a nominal or real discount rate related by the Fisher equation, every internal rate of return with Descartes' bound on their number, the modified IRR with finance and reinvestment rates, profitability index, simple and discounted payback interpolated within the period, the equivalent annual annuity for unequal lives, the engineering-economy factors P/F, F/P, A/P, P/A, A/F, F/A, P/G, A/G and the SPV, UPV and UPV* factors of NIST Handbook 135, the savings-to-investment ratio and adjusted internal rate of return of the Federal Energy Management Program, conventional and modified benefit-cost ratios, the NPV profile, after-tax cash flows with straight-line, MACRS or entered depreciation, the crossover rate and incremental IRR of two alternatives (lease against buy among them), and the economic life of a defender and a challenger by the minimum equivalent uniform annual cost.

1 worked example reproduced, listed on the tool page.

Other Finance and Business sections

Accounting · Economics and Damages · Personal Finance · Pricing · Marketing · Insurance · Operations and Capacity