CORP FIN QUERY

dee5.v
Good Student
Posts: 14
Joined: Wed Aug 29, 2012 5:39 pm

CORP FIN QUERY

Postby dee5.v » Tue Sep 11, 2012 6:34 pm

How are full years until recovery, unrecovered cost at the beginning of last year and cash flow during the year calculated? Please refer the Eg on Pg 18 in Schweser.

OR

please tell me the steps for the same.

Thanks

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shreyas
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Re: CORP FIN QUERY

Postby shreyas » Wed Sep 12, 2012 11:41 am

I assume you have understood how the table is constructed. The problem comes about the payback period calculation.

Full years until recovery is the total year before the cumulative net cash flow turns positive.

Unrecovered cost(absolute number) are the cumulative net cash flow negative for the year before turning into positive the followed year.

Cash flow during the last year are the year's CF when the cumulative net cash flows turns positive.

dee5.v
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Posts: 14
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Re: CORP FIN QUERY

Postby dee5.v » Wed Sep 12, 2012 4:00 pm

Thank You Sir !!

dee5.v
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Posts: 14
Joined: Wed Aug 29, 2012 5:39 pm

Re: CORP FIN QUERY

Postby dee5.v » Thu Sep 13, 2012 1:57 pm

Year 0 1 2 3 4
Proj A NCF -2000 1000 800 600 200
Cum NCF -2000 -1000 -200 400 600

Year 0 1 2 3 4
Proj B NCF -2000 200 600 800 1200
Cum NCF -2000 -1800 -1200 -400 800

Payback for A 2+200/600 2.33 yrs

Payback for B 3+400/600 3.33 yrs
So the numerator is actually the NEGATIVE (-200) for Proj A n (-400) for Proj B ?? The denominator is th CUMUALTIVE NCF of 600 for Proj A ? So accordingly fro Proj B, it shud b 800, why have thye given it 1200 ? Or denomiator for A should be 200.

Please let me know.

dee5.v
Good Student
Posts: 14
Joined: Wed Aug 29, 2012 5:39 pm

Re: CORP FIN QUERY

Postby dee5.v » Thu Sep 13, 2012 2:10 pm

oopsss

Payback for proj B, shud b 3 + 400/1200.


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