Problem 11.3 How do we adjust for depreciation when we calculate incremental aft
ID: 2360954 • Letter: P
Question
Problem 11.3 How do we adjust for depreciation when we calculate incremental after-tax free cash flow from EBITDA? What is the intuition for the adjustment? Problem 11.13 Explain the concept of equivalent annual cost and how it is used to compare projects with different lives. Problem 11.14 Explain how we decide the optimal time to replace an existing asset with a new one Problem 11.7 What are variable costs and fixed costs? What are some examples of each? How are these costs estimated in forecasting operating expenses?Explanation / Answer
Hi, If you like my answer rate me first...that way only I can earn points. Thanks 11.3 We add depreciation to EBITDA, Since EBITDA is derived by subtracting Depreciation in the very first place 11.13 equivalent annual cost is a measure to calculate returns from a project. The project with lower cost should be accepted. 11.14 It depends on depreciation schedule and value generation schedule of asset. If beyond certain time the asset does not add sufficient value or income it should be replaced with a better option. 11.7 Variable costs vary with the quantity produced while fixed costs do not. Variable: Direct labour or material cost, Fixed: capital, rent, machines Fixed costs are generally known, while variable costs are derived by calculating the cost of various inputs factors of production.