CH.10
Erosion cost = (Unit sales of SSD before launch) – (Unit sales after launch)
X (Selling Price – Unit Cost)
Erosion cost =ESW’s contribution margin – net change in margin
Erosion cost = (price – cost) x drop in sales volume
Depreciable basis = Cost + Installation
After-tax Salvage Value = Selling Price – Tax rate * (Selling price – Book Value)
OR
=Selling Price + Tax rate * (Book Value – Selling Price)
Book Value = initial cost– Accumulated depreciation
Initial capital investment = Purchase cost + Installation +Initial Increase in net
working capital -After-tax salvage value from disposal of old asset (if any)
OCF = EBIT – Taxes + Depreciation
Terminal Year Cash flow = OCF + After-tax Salvage Value
Annual dep. exp. = Cost + Installation / Life
Gain (or loss) on sale = Selling Price – Book value
Tax credit = Tax rate x Loss
Tax liability (or tax savings) = gain (or loss) x tax rate
After-tax cash flow = Selling price + Tax credit
After-tax Salvage Value of Equipment = Selling Price –Tax on Gain
Tax on gain = Tax rate * (Selling Price – Book Value)
Change in working capital = (ending inventory – beginning inventory) x cost per
unit
Where:
*Beginning inventory = Current months sales x projected sales
*Ending inventory = next months sales projection x projected sales
CH.11WACC, Sequation risk free return
g = (ending value / beginning value)1 / number of years – 1
Weighted average cost of borrowing = Proportion of each loan * Rate
Net proceeds on each bond = Selling price –Commission
Net price = Dividend/Rps
Preferred Stock Component = Rp = Dp/Net price
Security Market Line Approach/COST OF COMMON STOCK =
Cost of Equity with SML equation = Re = rf + [E(rm)-rf]βi
Constant growth in stock (dividend growth approach) =
where Div0 = last paid dividend per share;
Po = Current market price per share; and
g = constant growth rate of dividend.
Cost of Equity with Flotation Cost =
After-tax cost of debt = Rd*(1-Tc)
Adjusted Weighted Avg. cost of capital =
Profitability index = (NPV + Cost)/Cost
CH.12
Net Fixed Assets = Previous year + New
Growth rate (g)= (ending value / beginning value)1 / number of years – 1
Sales forecast = previous years ales x (1 + sales growth rate)