1. What is Cash Flows to the firm model? 2. What is a zero growth firm...
1. What is Cash Flows to the firm model?
2. What is a zero growth firm valuation?
Homework Answers
1)The cash flow to the firm or Free Cash Flow to Firm is the cash available to a business to all funding providers. It is the way of looking at the cashflow of a business to see what is available for distribution among security holders. Free cash flow is an important financial indicator of company's stock value. It also considers the capital expenditure and changes in working capital.
The formula for calculating Free Cash Flow to Firm =
| EBIT*(1-tax rate) + Depreciation&Amortization -Capital Expenditure - Net Working Capital |
2) Zero growth firm valuation is an approach to dividend valuation which assumes that the dividend paid by the stock remains same till the maturity. Under this method the stock price would be equal to annual dividend divided by required rate of return. This method is specific to stocks that have zero growth or no growth.
| Price = Dividend / Required return |
Add Answer to:
1. What is Cash Flows to the firm model?
2. What is a zero growth firm...
The dividend discount model uses the dividend growth rate to discount the cash flows. Group of...
The dividend discount model uses the dividend growth rate to discount the cash flows. Group of answer choices True or False
The dividend discount model uses the dividend growth rate to discount the cash flows. True False
The dividend discount model uses the dividend growth rate to discount the cash flows. True False
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)...
Ryan Enterprises forecasts the free cash flows (in millions) shown below. Assume the firm has zero...
Ryan Enterprises forecasts the free cash flows (in millions) shown below. Assume the firm has zero non-operating assets. The weighted average cost of capital is 13.0%, and the FCFs are expected to continue growing at a 5.0% rate after Year 3. What is the firm’s total corporate value (in millions)? Do not round intermediate calculations. Year 1 2 3 FCF -$15.0 $10.0 $55.0
The value of a share of common stock depends on the cash flows it is expected...
The value of a share of common stock depends on the cash flows it is expected to provide, and those flows consist of the dividends the investor receives each year while holding the stock and the price the investor receives when the stock is sold. The final price includes the original price paid plus an expected capital ghin. The actions of the marginal investor determine the equilibrium stock price Market equilibrium occurs when the stock's price is Select its intrinsic...
Your consulting firm will produce cash flows of $195,000 this year, and you expect cash flow...
Your consulting firm will produce cash flows of $195,000 this
year, and you expect cash flow to keep pace with any increase in
the general level of prices. The interest rate currently is 5.1%,
and you anticipate inflation of about 1.1%. a. What is the present
value of your firm’s cash flows for years 1 through 4? (Do not
round intermediate calculations. Round your answer to 2 decimal
places.) b. How would your answer to (a) change if you anticipated...
Compressed APV Model with Constant Growth An unlevered firm has a value of $900 million. An...
Compressed APV Model with Constant Growth An unlevered firm has a value of $900 million. An otherwise identical but levered firm has $70 million in debt at a 5% interest rate, which is its pre-tax cost of debt. Its unlevered cost of equity is 10%. After Year 1, free cash flows and tax savings are expected to grow at a constant rate of 3%. Assuming the corporate tax rate is 35%, use the compressed adjusted present value model to determine...
The value of a share of common stock depends on the cash flows it is expected...
The value of a share of common stock depends on the cash flows it is expected to provide, and those flows consist of the dividends the investor receives each year while holding the stock and the price the investor receives when the stock is sold. The final price includes the original price paid plus an expected capital gain. The actions of the marginal investor determine the equilibrium stock price. Market equilibrium occurs when the stock's price is Select- its Intrinsic...
Kale Inc. forecasts the free cash flows (in millions) shown below. Assume the firm has zero...
Kale Inc. forecasts the free cash flows (in millions) shown below. Assume the firm has zero non-operating assets. If the weighted average cost of capital is 11.0% and FCF is expected to grow at a rate of 5.0% after Year 2, then what is the firm's total corporate value in millions)? Do not round intermediate calculations. Year 12 Free Cash flow $50 $115 O a. $1,446 O b. $1,295 c. $1,833 d. $1,530 e. $1,682
Yr FCF 1 6M 2 10M A firm expects the free cash flows listed above. After...
Yr FCF 1 6M 2 10M A firm expects the free cash flows listed above. After year 2, the firm expects free cash flows will continue to grow indefinitely at the industry average of 5%. The firm estimates its cost of capital to be 8%. If the firm has debt of $40 million and cash of $20 million, what is its enterprise value? Assume 10 million shares outstanding.
The dividend discount model uses the dividend growth rate to discount the cash flows. True False
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)...
The value of a share of common stock depends on the cash flows it is expected to provide, and those flows consist of the dividends the investor receives each year while holding the stock and the price the investor receives when the stock is sold. The final price includes the original price paid plus an expected capital ghin. The actions of the marginal investor determine the equilibrium stock price Market equilibrium occurs when the stock's price is Select its intrinsic...
Your consulting firm will produce cash flows of $195,000 this
year, and you expect cash flow to keep pace with any increase in
the general level of prices. The interest rate currently is 5.1%,
and you anticipate inflation of about 1.1%. a. What is the present
value of your firm’s cash flows for years 1 through 4? (Do not
round intermediate calculations. Round your answer to 2 decimal
places.) b. How would your answer to (a) change if you anticipated...
Compressed APV Model with Constant Growth An unlevered firm has a value of $900 million. An otherwise identical but levered firm has $70 million in debt at a 5% interest rate, which is its pre-tax cost of debt. Its unlevered cost of equity is 10%. After Year 1, free cash flows and tax savings are expected to grow at a constant rate of 3%. Assuming the corporate tax rate is 35%, use the compressed adjusted present value model to determine...
The value of a share of common stock depends on the cash flows it is expected to provide, and those flows consist of the dividends the investor receives each year while holding the stock and the price the investor receives when the stock is sold. The final price includes the original price paid plus an expected capital gain. The actions of the marginal investor determine the equilibrium stock price. Market equilibrium occurs when the stock's price is Select- its Intrinsic...
Kale Inc. forecasts the free cash flows (in millions) shown below. Assume the firm has zero non-operating assets. If the weighted average cost of capital is 11.0% and FCF is expected to grow at a rate of 5.0% after Year 2, then what is the firm's total corporate value in millions)? Do not round intermediate calculations. Year 12 Free Cash flow $50 $115 O a. $1,446 O b. $1,295 c. $1,833 d. $1,530 e. $1,682
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