Operations of Constant Growth Firm EMC Corporation has never paid a dividend. Its current free cash flow of $400‚000 is expected to grow at a constant rate of 5%. The weighted average cost of capital is WACC = 12%. Calculate EMC’s value of operations. FCF = $400‚000 g = 5% WACC = 12% Vop = PV of expected future free cash flow Vop = = = $6‚000‚000 (13-3) Horizon Value Current and projected free cash flows for Radell Global Operations are shown below. Growth is expected to be constant after
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creation for Sears? For Wal-Mart? Week 2: Valuing Rajat Bhatia’s Business Plan 1. Estimate (i) the current market value of the firm’s debt‚ (ii) the current market value of the firm using the free cash flow to equity‚ and (iii) the current market value of the firm using the free cash flow to the firm. Week 3: Deutsche Brauerei 1. What accounts for Deutsche Brauerei’s rapid growth in recent years? Specifically‚ what policy choices account for this success? 2. What
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Summary of Reacquired Franchise Rights It has come to our attention that much of Roman Holiday’s recent revenue growth came from acquisition of franchise right and existing restaurants rather than real growth in the franchise. Management is aware of these issues and may be feeling some pressure to meet growth targets and earnings forecasts. In the following working papers‚ we address this potential issue by reviewing the various accounting treatments for the reacquired franchise rights. We also
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TYPES OF CORPORATE DIVERSIFICATION When a firm chooses to diversify‚ it faces a decision as to how related the new business(es) is(are) to the existing businesses of the firm. When Charles Bluhdorn was CEO of a company called Gulf+Western in the 1950s‚ he diversified into a host of industries: motion pictures (Paramount Pictures‚ the makers of The Godfather‚ Chinatown‚ and other movies)‚ clothing‚ cigars‚ zinc mines‚ auto parts‚ and sugar‚ among others! In contrast‚ a company such as Cooper
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their PSC closures as discontinued operations. The criteria used‚ assessment period‚ presentation‚ and disclosure for this retail company will be explained in detail when applying proper GAAP. A component of an entity comprises operations and cash flows that can be clearly distinguished‚ operationally and for financial reporting purposes‚ from the rest of the entity; it may be a reportable segment or an operating segment‚ a reporting unit‚ a subsidiary‚ or an asset group in which Auto World
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FIN350 midterm 1 Version B EVA = After-tax __ After-tax Operating Income Capital costs = NOPAT – After-tax Cost of Capital MVA = Market value __ Equity capital of equity supplied (book value) NOWC = Current assets - Non-interest bearing current liability FCFs for all investors = OCF-Gross Investment in Operating Capital = (OCF-Dep)-(Gross Investment in Operating
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is Valuation? Valuation: Methods of quantifying how much money something should be exchanged for today‚ considering future benefits. We will teach 4 valuation methods Trading Comparables Transaction Comparables Sum-of-the-Parts Valuation Discounted Cash Flow Analysis (DCF) $ 2 Why is Valuation important? Acquisitions: How much should we pay for the company? Divestitures: How much should we sell our company for? Sell-side Research: Should our clients buy‚ sell or hold a given stock (fixed income
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Ocean Carriers Objectives • Forecast pro-forma cash flows for a project • Estimate project values using Net Present Value (NPV) • Conduct sensitivity analysis for the forecast inputs Setting • January 2001 • Customer offering attractive terms on 3-year lease for a capesize carrier • Would require purchase of new carrier since existing fleet does not fulfill customer needs • Should it be purchased? Industry Dynamics • Revenue Drivers • Outlook in the: –
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conduct drastic financing strategy to recover itself. The company had two alternatives to rid of Hertz: selling to a private bidding group via LBO transaction and listing on public stock exchange market. Their priority was to acquire the immediate cash through this transaction of Hertz. Our analysis of the LBO offer proposed by Bidding Group yields an expected return of 21.2%‚ and expected return by the public market to equal 24%. FORD’S MOTIVATION In 2005‚ Ford is valuing possibilities of selling
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return on invested capital | 2. (TCO F) Which of the following statements is correct? (Points : 5) For a project with normal cash flows‚ any change in the WACC will change both the NPV and the IRR. To find the MIRR‚ we first compound cash flows at the regular IRR to find the TV‚ and then we discount the TV at the WACC to find the PV. The NPV and IRR methods both assume that cash flows can be reinvested at the WACC. However‚ the MIRR method assumes reinvestment at the MIRR itself. If two projects have
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