Homework Answers
Option a is right
There are two approaches to company valuation, Dividend discount model and Free cash flow model. The FCF model is used when the company pays no dividends. Other options are situations applicable to both methods.
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A financial analyst is least likely to use a free cash flow model to value a...
The cost of equity using the discounted cash flow (or dividend growth) approach Pierce Enterprises's stock...
The cost of equity using the discounted cash flow (or dividend growth) approach Pierce Enterprises's stock is currently selling for $25.67 per share, and the firm expects its per-share dividend to be $1.38 in one year. Analysts project the firm's growth rate to be constant at 5.72%. Estimating the cost of equity using the discounted cash flow (or dividend growth) approach, what is Pierce's cost of internal equity? O 10.55% 11.66% 14.99% 11.10% Estimating growth rates It is often difficult...
4. The cost of retained earnings True or False: It is free for a company to...
4. The cost of retained earnings True or False: It is free for a company to raise money through retained earnings, because retained earnings represent money that is left over after dividends are paid out to shareholders. False O True The cost of equity using the CAPM approach The current risk-free rate of return (rRF) is 4.67% while the market risk premium is 6.17%. The D'Amico Company has a beta of 0.92. Using the capital asset pricing model (CAPM) approach,...
A firm's value depends on its expected free cash flow and its cost of capital. Distributions...
A firm's value depends on its expected free cash flow and its cost of capital. Distributions made in the form of dividends or stock repurchases Impact the firm's value and the investors in different ways. In some cases, analysts notice that groups of similar investors tend to flock to stocks that have dividend policies consistent with their financial needs. This circumstance is an illustration of: the residual dividend policy. the signaling hypothesis. dividend irrelevance theory. the clientele effect. Consider the...
Basic Stock Valuation: Free Cash Flow Valuation Model The recognition that dividends are dependent on earnings,...
Basic Stock Valuation: Free Cash Flow Valuation Model The recognition that dividends are dependent on earnings, so a reliable dividend forecast is based on an underlying forecast of the firm's future sales, costs and capital requirements, has led to an alternative stock valuation approach, known as the free cash flow valuation model. The market value of a firm is equal to the present value of its expected future free cash flows: Market value of company FCF (1+WACC) + FCF (1+WACC)...
Please show with all steps Free Cash Flow Model 2012 $14,869.00 Free Cash Flow FCF Growth...
Please show with all steps
Free Cash Flow Model 2012 $14,869.00 Free Cash Flow FCF Growth 2013 $13,345.00 - 10.25% 2014 $12,685.00 -4.95% 2015 $13,104.00 3.30% 2016 $12,934.00 -1.30% 2017 Growth Rate $12,951.00 0.13% -2.72% Geometric Average -2.61% Arithmetic Average Equity Beta Debt/Equity Tax Rate Risk-Free Rate Market Risk Premium 0.8 2.26 21% 2.00% 10.00% Asset Beta Required Rate of Return using CAPM 0.2872 4.87% Value of Firm using Free Cash Flow Model with Geometric Average: Value of Firm using...
True or False: It is free for a company to raise money through retained earnings, because...
True or False: It is free for a company to raise money through retained earnings, because retained earnings represent money that is left over after dividends are paid out to shareholders. True False The cost of equity using the CAPM approach The current risk-free rate of return (TRF) is 4.67%, while the market risk premium is 6.17%. the Jefferson Company has a beta of 1.56. Using the Capital Asset Pricing Model (CAPM) approach, Jefferson's cost of equity is The cost...
Use the corporate, or free cash flow, model to estimate Petry Corporation's intrinsic value. The firm's...
Use the corporate, or free cash flow, model to estimate Petry Corporation's intrinsic value. The firm's WACC is 10.00%, its end-of-year free cash flow (FCF1) is expected to be $65.0 million, the FCFs are expected to grow at a constant rate of 5.00% a year in the future, the company has $200 million of long-term debt and preferred stock, and it has 25 million shares of common stock outstanding. Assume the firm has zero non-operating assets. What is the firm's...
3. Fundamentals of the free cash flow corporate valuation model Aa Aa E Several methods can...
3. Fundamentals of the free cash flow corporate valuation model Aa Aa E Several methods can be used to compute the intrinsic value of a share of a company's common stock. One method uses the free cash flow (FCF) valuation model, while the another method uses the dividend discount model. The FCF valuation model computes a firm's value-also called its the value of its operating activities (Vop) and the value of firm's nonoperating value-as the sum of , where: the...
1. Fundamentals of the free cash flow corporate valuation model Several methods can be used to...
1. Fundamentals of the free cash flow corporate valuation model Several methods can be used to compute the intrinsic value of a share of a company's common stock. One method uses the free cash flow (FCF) valuation model, while the another method uses the dividend discount model value-as the sum of the value of its operating The FCF valuation model computes a firm's activities (Vop) and the value of firm's nonoperating value-also called its where: • From a manager's perspective,...
Estimating Stock Value Using Dividend Discount Model with Constant Perpetuity Kellogg pays $2.25 in annual per...
Estimating Stock Value Using Dividend Discount Model with Constant Perpetuity Kellogg pays $2.25 in annual per share dividends to its common stockholders, and its recent stock price was $82.50. Assume that Kellogg’s cost of equity capital is 5.0%. a. Estimate Kellogg’s stock price using the dividend discount model with constant perpetuity. $Answer b. Compare the estimate obtained in part a with Kellogg’s $82.50 price. What does the difference between these amounts imply about Kellogg’s future growth? The estimated price is...
The cost of equity using the discounted cash flow (or dividend growth) approach Pierce Enterprises's stock is currently selling for $25.67 per share, and the firm expects its per-share dividend to be $1.38 in one year. Analysts project the firm's growth rate to be constant at 5.72%. Estimating the cost of equity using the discounted cash flow (or dividend growth) approach, what is Pierce's cost of internal equity? O 10.55% 11.66% 14.99% 11.10% Estimating growth rates It is often difficult...
4. The cost of retained earnings True or False: It is free for a company to raise money through retained earnings, because retained earnings represent money that is left over after dividends are paid out to shareholders. False O True The cost of equity using the CAPM approach The current risk-free rate of return (rRF) is 4.67% while the market risk premium is 6.17%. The D'Amico Company has a beta of 0.92. Using the capital asset pricing model (CAPM) approach,...
A firm's value depends on its expected free cash flow and its cost of capital. Distributions made in the form of dividends or stock repurchases Impact the firm's value and the investors in different ways. In some cases, analysts notice that groups of similar investors tend to flock to stocks that have dividend policies consistent with their financial needs. This circumstance is an illustration of: the residual dividend policy. the signaling hypothesis. dividend irrelevance theory. the clientele effect. Consider the...
Basic Stock Valuation: Free Cash Flow Valuation Model The recognition that dividends are dependent on earnings, so a reliable dividend forecast is based on an underlying forecast of the firm's future sales, costs and capital requirements, has led to an alternative stock valuation approach, known as the free cash flow valuation model. The market value of a firm is equal to the present value of its expected future free cash flows: Market value of company FCF (1+WACC) + FCF (1+WACC)...
Please show with all steps
Free Cash Flow Model 2012 $14,869.00 Free Cash Flow FCF Growth 2013 $13,345.00 - 10.25% 2014 $12,685.00 -4.95% 2015 $13,104.00 3.30% 2016 $12,934.00 -1.30% 2017 Growth Rate $12,951.00 0.13% -2.72% Geometric Average -2.61% Arithmetic Average Equity Beta Debt/Equity Tax Rate Risk-Free Rate Market Risk Premium 0.8 2.26 21% 2.00% 10.00% Asset Beta Required Rate of Return using CAPM 0.2872 4.87% Value of Firm using Free Cash Flow Model with Geometric Average: Value of Firm using...
True or False: It is free for a company to raise money through retained earnings, because retained earnings represent money that is left over after dividends are paid out to shareholders. True False The cost of equity using the CAPM approach The current risk-free rate of return (TRF) is 4.67%, while the market risk premium is 6.17%. the Jefferson Company has a beta of 1.56. Using the Capital Asset Pricing Model (CAPM) approach, Jefferson's cost of equity is The cost...
3. Fundamentals of the free cash flow corporate valuation model Aa Aa E Several methods can be used to compute the intrinsic value of a share of a company's common stock. One method uses the free cash flow (FCF) valuation model, while the another method uses the dividend discount model. The FCF valuation model computes a firm's value-also called its the value of its operating activities (Vop) and the value of firm's nonoperating value-as the sum of , where: the...
1. Fundamentals of the free cash flow corporate valuation model Several methods can be used to compute the intrinsic value of a share of a company's common stock. One method uses the free cash flow (FCF) valuation model, while the another method uses the dividend discount model value-as the sum of the value of its operating The FCF valuation model computes a firm's activities (Vop) and the value of firm's nonoperating value-also called its where: • From a manager's perspective,...
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