Determining assumptions
This common financial assumption treats future cash flows as if they occur at a single point in time, typically the end of a period, for simplicity in calculation.
What is the End-of-Year Convention?
This key variable represents the annual reduction in the value of assets, and it is typically assumed to follow a standard schedule, like straight-line, for the project's life.
What is Depreciation?
This is the starting point for calculating operating cash flow, representing the total revenue a project generates from its core activities.
What is Sales Revenue?
This is the core purpose of calculating a terminal value: to estimate a project's worth beyond this specific forecast period.
What is the explicit forecast horizon?
This date marks the beginning of mexican independence under command of Miguel Hidalgo
What is september 16th 1810?
A critical assumption for the Weighted Average Cost of Capital (WACC), this presumes the company will maintain a specific, fixed ratio of debt to equity throughout the project's life
What is a constant or target capital structure?
A critical assumption about this working capital variable is that it will remain a constant percentage of sales, so it automatically increases as revenue grows.
What are Accounts Receivable (or Inventory)?
This specific cash flow figure is calculated as Operating Cash Flow minus Capital Expenditures and is a key indicator of a project's financial health.
What is Free Cash Flow (FCF)?
This common terminal value method assumes the company's cash flows will grow at a modest, constant rate forever, like a perpetuity
What is the Gordon Growth Model (or Perpetuity Growth Method)?
This national hero led Mexican forces to victory against the French at the Battle of Puebla on May 5, 1862.
Who is General Ignacio Zaragoza?
This optimistic assumption simplifies long-term planning by stating that a project's initial success, including sales growth and market share, will continue indefinitely into the future.
What is assuming a perpetual or constant growth rate?
When projecting the income statement, a common assumption is that this expense will remain a fixed percentage of revenue, simplifying the forecast of operational efficiency.
What are Operating Expenses
In a capital budgeting analysis, this type of cash flow must be calculated separately from operating cash flows and represents the recovery of working capital at the project's end.
What is Terminal Cash Flow (or Non-operating Cash Flow)?
This alternative to the growth perpetuity method calculates terminal value by applying a market-based multiple, such as EV/EBITDA, to the project's final year forecasted metric.
What is the Exit Multiple Method?
This political and social movement (1910–1920) ended the long rule of Porfirio Díaz and led to the creation of Mexico’s 1917 Constitution.
What is the Mexican Revolution?
This assumption often underlies the sales forecast and implies that actions by competitors will not erode the company's projected market share or pricing power.
What is assuming a static competitive environment?
This key financing variable is often assumed to be constant or to follow a predetermined drawdown and repayment schedule, ignoring the possibility of refinancing
What is the project's debt balance or debt schedule?
This calculation involves adjusting net income for non-cash expenses and changes in working capital accounts to find the cash generated from core business operations.
What is the Indirect Method for calculating Operating Cash Flow?
In the Gordon Growth Model, this critical variable (denoted by 'g') must be chosen carefully and should not exceed the long-term growth rate of this broader economic indicator.
What is the Nominal GDP growth rate? (Acceptable: What is the "economy"?)
This treaty, signed in 1848, ended the war between Mexico and the United States, forcing Mexico to cede nearly half of its territory.
What is the Treaty of Guadalupe Hidalgo?
A subtle but critical assumption in scenario analysis, this is the often-unstated belief that the probability distributions of key variables, like commodity prices or interest rates, are stable and known.
What is assuming stationary parameters?
This terminal value assumption involves estimating the project's value at the end of the forecast horizon by assuming its cash flows will grow at a constant, conservative rate forever.
What is the Gordon Growth Model (or Perpetuity Growth Model) approach?
This is the cash flow figure used in NPV calculations, representing the total cash available to all providers of capital, both debt and equity, after accounting for taxes and reinvestment needs.
What is Free Cash Flow to the Firm (FCFF)?
This financial principle is the reason why terminal value often constitutes a very large percentage of a DCF's total value, as money received far in the future is still being discounted to its present value.
What is the Time Value of Money?
This indigenous leader and later president, born in Oaxaca, is remembered for his reforms, resistance to French intervention, and the phrase “El respeto al derecho ajeno es la paz.”
Who is Benito Juárez?