Week 6

Question 1

What is unlevered DCF?

Answer 1

before payments of debt

Question 2

What is levered DCF?

Answer 2

after interest expense and after debt paydown

Question 3

If working capital has a negative change…

Answer 3

current assets are increasing more than current liabilities

Question 4

If working capital has a positive change…

Answer 4

current liabilities are increasing more than current assets

Question 5

What is net working capital (NWC)?

Answer 5

• Difference between a company’s current assets and current liabilities on its balance sheet
• Measure of a company’s liquidity and its ability to meet short-term obligations and fund operations of the business

Question 6

Different approaches to calculate NWC

Answer 6

• exclude cash and debt (current portion only)

- only include accounts receivable, inventory, and accounts payable

Question 7

Formula(s) for NWC

Answer 7

NWC = Current Assets – Current Liabilities 
NWC = Current Assets (less cash) – Current Liabilities (less debt)
NWC = Accounts Receivable + Inventory – Accounts Payable

Question 8

Increase in AR is…

Answer 8

a use of cash

Question 9

Decrease in AR is…

Answer 9

a source of cash

Question 10

What is capital expenditures (CapEx)?

Answer 10

funds used by a company to acquire, upgrade, and maintain physical assets (PP&E)

Question 11

Formula for CapEx

Answer 11

CapEx = change in PP&E + current depreciation

Question 12

What is terminal value (TV)?

Answer 12

value of a business or project beyond the forecast period when future cash flows can be estimated
Assumes a business will grow at a set growth rate forever after the forecast period

Question 13

What is sensitivity analysis?

Answer 13

determines how different values of an independent variable affect a particular dependent variable under a given set of assumptions