Plan for Today
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Transcript of Plan for Today
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Plan for Today
1. Hand in case
2. Administration & Questions
3. Review of last class
4. Case: Tartempion: The incremental approach
5. Tax shields -- Capital Cost Allowance (CCA)
6. Case: Fonderia Di Torino S.P.A.
7. Conclusion and preparation for next week
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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
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Course in a Nutshell
Stockholders
Bondholders
FinancialManager
Projects
Investments
Cash flow
Interest
Dividends
The FirmCapital Budgeting
The MarketCapital Structure
Equity
Debt
Government
CorporateTaxesPersonal
Taxes
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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
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Next Week
• Quiz– Start of class– Material from weeks 1 and 2
• Readings: Chapters 9 and 11• Case: The Investment Detective
– Read through only