Question

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Answer 1

1: NOPAT = EBIT*(1-Tax)

(NOPAT is net operating profit after tax. EBIT is operating profit. Hence NOPAT is computed as EBIT*(1-Tax))

2: FCF = NOPAT- (Non cash items)- Change in NWC- Capex- Change in cash

(Free cash flow refers to cash flow available after changes in working capital, fixed assets expenses and cash balance)

3: EBIAT= EBIT*(1-Tax)

(EBIAT is EBIT after tax)

4: Change in NWC = Chg in AR+ Chg in Inventory -Chg in AP

(This is difference between change in current assets and current liabilities)

5: WACC = WD*Rd*(1-Tax)+ We*Re

(WACC is the sum of weights*Cost of debt/equity)

6: CAPM : RE= Rf+ Beta*(Rm-Rf)

As per CAPM, Cost of equity is risk free rate+ Beta*Risk premium