BMGT 440 Study Guide - Midterm Guide: Opportunity Cost, Retained Earnings, Profit Margin

• School: University of Maryland
• Department: Business and Management
• Course: BMGT 440
• Professor: David Kass

Document Summary

Calculate the present value of a terminal value in a discounted cash flow problem. (next year = this year x (1+g)) First, find free cash flow. calculate ebit after tax, first do revenue-op costs, which is ebit. Then add depreciation, and minus change in net working capital and minus capital expenditures. This equals free cash flow and do this for every year. **only after-tax cash flows are relevant, don"t use outflows, forget sunk costs, and use opp. costs. Terminal value equation: calculating present value for future year. *terminal value formula= (cash flow of next year)/(wacc-g); to find cash flow of next year= cash flow of latest year*(1+g). Then, add all annual cash flows together, and add terminal value (calculated earlier) and that= enterprise value. Then, if you have long-term debt value, subtract that from the enterprise value, and that is equity value.