CFA LEVEL 1 CORPORATE FINANCE PDF

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CFA Level 1 Corporate Finance E book - Part computerescue.info - Download as PDF File .pdf) , Text File .txt) or view presentation slides online. mba. Page 1. Level II CFA Program Curriculum. Corporate Finance (1) of 1) mutually exclusive projects with unequal lives, using either the least com-. SCHWESERNOTES™ CFA LEVEL I BOOK 4: CORPORATE FINANCE, . when 1) the redownload is financed with the company's excess cash and 2) the.


Cfa Level 1 Corporate Finance Pdf

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Level 1 Chartered Financial Analyst. You are Smart Summaries for Corporate Finance. Smart Summary, Study Session 11, Reading 36 Capital computerescue.info CFA SchweserNotes Level 1. Corporate Finance, Portfolio Management, and Equity Investments 4. Файл формата pdf; размером 14,14 МБ. Добавлен. Schweser CFA. Level 1 SchweserNotes Book 4: Corporate Finance, Portfolio Management, and Equity Investments. Файл формата pdf.

Expected future cash flows must be measured on an after-tax basis. The firm's wealth depends on its usable after-tax funds.

Ignore how the project is financed. Interest payments should not be included in the estimated cash flows since the effects of debt financing are reflected in the cost of capital used to discount the cash flows. The existence of a project depends on business factors, not financing.

Since sunk costs are not increment costs, they should not be included in the capital budgeting analysis. That is, the coffee shop will always be losing money. Incremental cash flow is the net cash flow attributable to an investment project.

It represents the change in the firm's total cash flow that occurs as a direct result of accepting the project. Externalities are the effects of a project on cash flows in other parts of the firm.

Although they are difficult to quantity, they which can be either positive or negative should be considered. For example, the coffee shop may generate some additional customers for the bookstore who otherwise may not download books there. Future cash flows generated by positive externalities occur if with the projects and do not occur if without the project, so they are incremental. For example, if the bookstore is considering to open a branch two blocks away, some customers who download books at the old store will switch to the new branch.

The customers lost by the old store are a negative externality. The primary type of negative externalities is cannibalization, which occurs when the introduction of a new product causes sales of existing products to decline.

Future cash flows represented by negative externalities occur regardless of the projects, so they are nonincremental.

Such cash flows represent a transfer from the existing projects to the new projects, and thus should be subtracted from the new projects' cash flows. Mutually exclusive are investments that compete in some way for a company's resources - a firm can select one or another but not both.

CFA Exam Level -I Corporate Finance Module Dr. Bulent Aybar

Independent projects, on the other hand, do not compete with the firm's resources. A company can select one or the other or both, so long as minimum profitability thresholds are met. Project sequencing. How does one sequence multiple projects through time since investing in project B may depend on the result of investing in project A? Unlimited funds versus capital rationing. Capital rationing occurs when management places a constraint on the size of the firm's capital budget during a particular period.

In such situations, capital is scarce and should be allocated to the best projects to maximize the firm's aggregate NPV. The firm's capital budget and cost of capital must be determined simultaneously to best allocate the firm's capital. On the other hand, a firm can raise the funds it wants for all profitable projects simply by paying the required rate of return.

Investment Decision Criteria CFA - Corporate Finance E-book 1 of 7 When a firm is embarking upon a project, it needs tools to assist in making the decision of whether to invest in the project or not. In order to demonstrate the use of these four methods, the cash flows presented below will be used. The project is accepted if the NPV is positive. Cash outflows are treated as negative cash flows since they represent expenditure that the company has to incur to fund the project.

Cash inflows are treated as positive cash flows since they represent money being brought into the company. The NPV represents the amount of present-value cash flows that a project can generate after repaying the invested capital project cost and the required rate of return on that capital. An NPV of zero signifies that the project's cash flows are just sufficient to repay the invested capital and to provide the required rate of return on that capital.

If a firm takes on project with a positive NPV, the position of the stockholders is improved. Decision rules 1. The higher the NPV, the better. Reject if NPV is less than or equal to 0. However, it does not measure the rate of return of the project, and thus cannot provide "safety margin" information.

CFA Corporate Finance - Level 1.pdf - Corporate Finance

Safety margin refers to how much the project return could fall in percentage term before the invested capital is at risk. The IRR on a project is its expected rate of return. The higher the IRR, the better. Define the hurdle rate, which typically is the cost of capital. The typical steps in the capital budgeting process: 1. Generating good investment ideas to consider. Analyzing individual proposals - forecast cash flows, evaluate profitability, etc.

Planning the capital budget - how does the project fit within the company's overall strategies? What's the timeline and priority? Monitoring and post-auditing - The post-audit is a follow-up of capital budgeting decisions. It is a key element of capital budgeting. By comparing actual results with predicted results and then determining why differences occurred, decision makers can: Improve forecasts, based on which you can make good capital budgeting decisions.

Otherwise, you will have the GIGO garbage in, garbage out problem; Improve operations, thus making capital decisions well implemented. Copyright www. There are two types of replacement decisions. The issue is two-fold: should you continue the existing operations? If yes, should you continue to use the same processes? Maintenance decisions are usually made without detailed analysis.

Cost reduction projects determine whether to replace serviceable but obsolete equipments.

These decisions are discretionary, and a detailed analysis is usually required. The cash flows from the old asset must be considered in replacement decisions.

Corporate Finance E-Book

Specifically, in a replacement project, the cash flows from selling old assets should be used to offset the initial investment outlay. Expansion projects. Expansion into new products, services or markets. These projects involve strategic decisions and explicit forecasts of future demand, and thus require detailed analysis. These projects are more complex than replacement projects. Regulatory, safety and environmental projects. These projects are mandatory investments, and are often non-revenue-producing.

Some projects need special considerations other than the traditional capital budgeting analysis, for example, a very risky research project in which cash flows cannot be reliably forecast. Basic Principles Of Capital Budgeting. CFA - Corporate Finance E-book 1 of 7 Capital budgeting decisions are based on incremental after-tax cash flows discounted at the opportunity cost of capita. Assumptions of capital budgeting are: Capital budgeting decisions must be made on cash flows, not accounting income.

Accounting income calculations reflect non-cash items and ignore the time value of money. They are important for some purposes, but for capital budgeting, cash flows are what are relevant. Financing costs are ignored in computing economic income. Cash flow timing is critical because money is worth more the sooner you get it. Also, firms must have adequate cash flow to meet maturing obligations. The opportunity cost should be charged against a project.

Remember that just because something is on hand does not mean it's free. See below for the definition of opportunity cost.

Expected future cash flows must be measured on an after-tax basis. The firm's wealth depends on its usable after-tax funds. Ignore how the project is financed. Interest payments should not be included in the estimated cash flows since the effects of debt financing are reflected in the cost of capital used to discount the cash flows. The existence of a project depends on business factors, not financing. Since sunk costs are not increment costs, they should not be included in the capital budgeting analysis.

That is, the coffee shop will always be losing money. Incremental cash flow is the net cash flow attributable to an investment project. These projects are mandatory investments.

The issue is two-fold: If yes.

These decisions are discretionary. Some projects need special considerations other than the traditional capital budgeting analysis. There are two types of replacement decisions. The cash flows from the old asset must be considered in replacement decisions.

Cost reduction projects determine whether to replace serviceable but obsolete equipments. These projects involve strategic decisions and explicit forecasts of future demand.

Corporate Finance E-book 1 of 7 Project classifications: Expansion into new products. Maintenance decisions are usually made without detailed analysis. These projects are more complex than replacement projects.

Interest payments should not be included in the estimated cash flows since the effects of debt financing are reflected in the cost of capital used to discount the cash flows. Accounting income calculations reflect non-cash items and ignore the time value of money. Assumptions of capital budgeting are: Financing costs are ignored in computing economic income. Remember that just because something is on hand does not mean it's free. See below for the definition of opportunity cost.

Basic Principles Of Capital Budgeting. The firm's wealth depends on its usable after-tax funds. Corporate Finance E-book 1 of 7 Capital budgeting decisions are based on incremental after-tax cash flows discounted at the opportunity cost of capita.

CFA Level 1 Corporate Finance E book - Part 1.pdf

The existence of a project depends on business factors. They are important for some purposes. The opportunity cost should be charged against a project. Ignore how the project is financed. For example. It represents the change in the firm's total cash flow that occurs as a direct result of accepting the project. Since sunk costs are not increment costs.

Important capital budgeting concepts: Incremental cash flow is the net cash flow attributable to an investment project. That is. In the previous year.

The customers lost by the old store are a negative externality. The primary type of negative externalities is cannibalization.

Although they are difficult to quantity. Externalities are the effects of a project on cash flows in other parts of the firm. Such cash flows represent a transfer from the existing projects to the new projects.

Measurement after Recognition CFA. Future cash flows generated by positive externalities occur if with the projects and do not occur if without the project. Conventional versus non-conventional cash flows.

The firm's capital budget and cost of capital must be determined simultaneously to best allocate the firm's capital. In such situations. A company can select one or the other or both. Capital rationing occurs when management places a constraint on the size of the firm's capital budget during a particular period. Independent projects. Mutually exclusive are investments that compete in some way for a company's resources.

How does one sequence multiple projects through time since investing in project B may depend on the result of investing in project A? Unlimited funds versus capital rationing. Some project interactions: On the other hand. Project sequencing.However, it does not measure the rate of return of the project, and thus cannot provide "safety margin" information. Any value lower than 1.

Cash flow timing is critical because money is worth more the sooner you get it. This will help assess the progress you have made and expose the areas of weakness which might require extra effort and study time to be mastered. The firm's capital budget and cost of capital must be determined simultaneously to best allocate the firm's capital. On the other hand, a firm can raise the funds it wants for all profitable projects simply by paying the required rate of return.

There are many PDF books available for free on the internet in the form of notes. RaviKiran Avula. Corporate Finance E-book 1 of 7 Capital budgeting is the process of planning expenditures on assets fixed assets whose cash flows are expected to extend beyond one year.

The curriculum includes the more fundamental corporate finance topics—capital investment decisions, capital structure policy, and dividend policy —as well as advanced topics such as the analysis of mergers and acquisitions , corporate governance , and business and financial risk.

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