Flashcards in 02 Lecture Deck (17):

1

## When do you use the Equity Approach

### When valuing banks and investment firms

2

## Which two approaches representing the DCF

###
- Entity Approach (WACC, APV)

- Equity Approach

3

## How to calculate the Net Operating Profit after Taxes (NOPAT)

### NOPAT = EBIT - Taxes

4

## How to calculate the Free Cash Flow to Firm (Entity Approach)

### NOPAT + Depreciations - Investments +- Change of Net Operation Working Capital

5

## How to calculate the Net Income (NI)

### NI = Earnings Before Taxes (EBT) - Taxes

6

## How to calculate the Free Cash Flow to Equity (Equity Approach)

### NI + Depreciations - Investments +- Change of Net Operation Working Capital - Cash flow to dept

7

## What is the FCFE

### The Free Cash Flow to Equity is the amount of money that can be distributed to equity holders

8

## How to calculate the Total Entity Value (Firm Value)?

###
Value of operations (Enterprise Value) + Value of non-operating Assets (e.g. Cash Holdings)

V = V_op + V_nop

9

## What is the lower and upper bound of g in the Gorden-Growth Formula

###
g has to be higher than the inflation rate

g has to be lower than the nominal GDP growth

10

## Simplification of Market Value of Dept

###
Book value of dept.

Not a good assumption if the company is at default

11

## In the DCF you only have to take ... liabilities into acount

### interest bearing liabilities

12

## Why is the Beta very noisy?

###
Depends on the

- time period

- sampling frequency

- market models

- etc

13

## Why do Betas of companies need to be re-leveraged

###
- Company-specific leverage has large influence

- Beta with leverage of target company has to be calculated

- adjustment can be done via the WACC-formula

14

## When does the circularity problem of the WACC arise

### When you calculate the WACC of a company where the capital structure is given or a given debt value

15

## What is the highest maturity you can use the Svensson-Method for?

### 30 years

16

## What does the WACC Methode assume

### That you have a constant capital structure

17