Homework Answers
Free cash flow model is very helpful in evaluating capacity of the firm to pay dividends to the shareholders. In other words we can say that as per cash flow model, it focus on the cash flows generated by the firm which makes a firm able to pay dividends to the shareholders. As we know that value of the firm in present will be equal to the present value of future cash flows genrated by the firm.
Free cash flow model makes a firm able to evaluating a firm capacity to makes accurate decisions about the dividend payment, stock repurchase and further investment related decisions etc. Hence it is true that free cash flow model is very helpful in knowing real cash flows in the firm which will be either distributed amongst the shareholders or will be utilized for repurchase of existing stocks or will be used for other business oppurtunities etc.
Thus it is clear that free cash flow model makes a firm able to know actual value of expected future cash flows, so that management of the firm can take more accurate business decisions such as (dividend related decisions, investment related decisions, repurchase related decisions, business combination & mergers related decisions, repurchase related decisions, business expansion decisions etc.)
Explain the difference b/w the Free Cash flow stock valuation model and the Divided Discount model....
Explain the difference b/w the Free Cash flow stock valuation model and the Divided Discount model. What discount rate is used in the Free Cash flow model and what extra step do you need to take in order to calculate a stock price?
(a) Explain and discuss the discounted free cash flow equity valuation model. (b) CBT has reported...
(a) Explain and discuss the discounted free cash flow equity valuation model. (b) CBT has reported EBIT of $500mn this year. Its net investment, including capital expenditure net of depreciation and working capital investment is $200mn. Its EBIT and investment needs are expected to grow at a constant rate of 1% per year. It is expected that CBT maintains the current debt-to-equity ratio of 4. The corporate tax rate is 20%. The required return on its assets (business) is 14%....
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...
Explain the theory behind vibratory PEP?
Explain the theory behind vibratory PEP?
Section 2: Compare and contrast the dividend discount model to the free cash flow model with...
Section 2: Compare and contrast the dividend discount model to the free cash flow model with respect to their strengths and weaknesses in deriving the intrinsic share price. 2.
1. Explain the difference between a company's operating cash flow and its free cash flow. Describe...
1. Explain the difference between a company's operating cash flow and its free cash flow. Describe the key features of the free cash flow approach to valuation. 2. What does the phrase sustainable earnings mean? What types of earnings are not sustainable? 3. What are abnormal earnings? Describe the key features of the abnormal earnings approach to valuation.
Using the free cash flow valuation model to price an IPO Personal Finance Problem Assume that...
Using the free cash flow valuation model to price an IPO Personal Finance Problem Assume that you have an opportunity to buy the stock of CoolTech, Inc., an IPO being offered for $8.47 per share. Although you are very much interested in owning the company, you are concerned about whether it is fairly priced. To determine the value of the shares, you have decided to apply the free cash flow valuation model to the firm's financial data that you've accumulated...
Explain in words the logic behind Miller’s theory of capital structure. How does this theory apply...
Explain in words the logic behind Miller’s theory of capital structure. How does this theory apply in Canada?
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)...
Using the free cash flow valuation model to price an IPO Personal Finance Problem Assume that...
Using the free cash flow valuation model to price an IPO Personal Finance Problem Assume that you have an opportunity to buy the stock of CoolTech, Inc., an IPO being offered for $10.48 per share. Although you are very much interested in owning the company, you are concerned about whether it is fairly priced. To determine the value of the shares, you have decided to apply the free cash flow valuation model to the firm's financial data that you've accumulated...
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...
Section 2: Compare and contrast the dividend discount model to the free cash flow model with respect to their strengths and weaknesses in deriving the intrinsic share price. 2.
Using the free cash flow valuation model to price an IPO Personal Finance Problem Assume that you have an opportunity to buy the stock of CoolTech, Inc., an IPO being offered for $8.47 per share. Although you are very much interested in owning the company, you are concerned about whether it is fairly priced. To determine the value of the shares, you have decided to apply the free cash flow valuation model to the firm's financial data that you've accumulated...
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)...
Using the free cash flow valuation model to price an IPO Personal Finance Problem Assume that you have an opportunity to buy the stock of CoolTech, Inc., an IPO being offered for $10.48 per share. Although you are very much interested in owning the company, you are concerned about whether it is fairly priced. To determine the value of the shares, you have decided to apply the free cash flow valuation model to the firm's financial data that you've accumulated...
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