Plan for Today

1
Plan for Today

• Hand in case
• Administration Questions
• Review of last class
• Case Tartempion The incremental approach
• Tax shields -- Capital Cost Allowance (CCA)
• Case Fonderia Di Torino S.P.A.
• Conclusion and preparation for next week

2
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

3
Course in a Nutshell
The Firm Capital Budgeting
The Market Capital Structure
Stockholders
Dividends
Cash flow
Equity
Financial Manager
Projects
Debt
Bondholders
Investments
Interest
Corporate Taxes
Personal Taxes
Government
4
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 Buffets
  investment principals

5
Next Week

• Quiz
• Start of class
• Material from weeks 1 and 2
• Readings Chapters 9 and 11
• Case The Investment Detective
• Read through only