CHAPTER 4 FREE CASH FLOW VALUATION LEARNING OUTCOMES After completing this chapter‚ you will be able to do the following : • Define and interpret free cash flow to the firm (FCFF) and free cash flow to equity (FCFE). • Describe‚ compare‚ and contrast the FCFF and FCFE approaches to valuation. • Contrast the ownership perspective implicit in the FCFE approach to the ownership perspective implicit in the dividend discount approach. • Discuss the appropriate adjustments to net income‚ earnings
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Corporation A based on a 5 year projected income statement and cash flow statement as well as each Corporation’s NPV and IRR. The net present value represents the project adds to shareholder wealth. The net present value is also the present value of future cash returns. In order to find the net present value‚ the present value of cash flows and sum of discounted cash flows has to be determined. Finding the present value of cash flows includes the revenue minus the expenses‚ depreciation‚ and
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Practice for Lecture 1: Basic Financial Analysis Question 1. Consider the following financial statements for SubMart Corp contained in the company’s most recent annual report filed with the OSC. SubMart Corp Balance Sheet‚ December 31‚ 2012 Assets Cash Accounts receivable Inventories Property‚ plant & equipment Less accumulated depreciation Total assets Liabilities & Equity Accounts payable Accrued expenses payable Long-term debt Common stock Retained earnings Total liabilities and equity 2010 2011
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1/20/2013 MACC 594: LECTURE NOTES‚ MODULE I: INTRODUCTION TO ANALYSIS AND REVIEW OF BASIC CONCEPTS PART I. A. REVIEW OF FINANCIAL STATEMENTS ANALYZING THE BALANCE SHEET • The balance sheet lists the firm’s assets‚ liabilities and equity accounts and their balances at the end of the period. • What does the balance sheet reveal about a firm? • Size of the company (total assets or net assets) • Major assets owned and proportion of current vs. noncurrent assets: - Is the mix of assets consistent
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Credit a Cash A/c Sanjay A/c Real Personal Cash (Cheque) is coming in Sanjay is the giver Debit Credit b Ramu A/c Bank A/c Personal Personal Ramu is the receiver Bank is the giver Debit Credit c Salary A/c Cash A/c Nominal Real Salary is an expense Cash is going out Debit Credit d Rent A/c Bank A/c Nominal Personal Rent is an expense Bank is the giver Debit Credit e Drawings A/c Purchase A/c Personal Nominal Owner is the receiver Decrease in Stock Debit Credit f Advance to Supplier A/c Cash A/c Personal
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its debt structure‚ we can see in the forecast that the net cash flow will be negative and ratios like ROE will keep decreasing in several years‚ which means that profitability of this company is going down. And also‚ Padgett Paper’s cash flow and net income will become more and more hardly to repay the short-term notes and the interests. Analysis The core of these problems is how to increase the net cash flow. From the cash flow statement‚ we can find at least 3 methods: reducing the accounts
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Jönköping‚ Sweden d School of Economics‚ University of East Anglia‚ Norwich NR4 7TJ‚ UK b c a b s t r a c t JEL classification: G32 G30 Keywords: Financial constraints Financial structure Financial development Cash flow sensitivity of cash We estimate firms’ cash flow sensitivity of cash to empirically test how the financial system’s structure and level of development influence their financial constraints. For this purpose we merge Almeida et al.’s work‚ a path-breaking design for evaluating a firm’s
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amount of total purchased ordinary shares. Retained earnings are the sum of profit retained in the entity after dividends payout. The share-based payment arises on the grant of share optons to employees and executives under share option plan and the cash flow hedge reserves. (b) Total equity of 775 millions in 2012 and 785 millions in 2011 are reported. (c) The opening contributed capital was $ 525‚105‚000 at 31st July 2011 and $547‚028‚000 at the end of the reporting period. The change in contributed
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exists between the cash flows of one project and another. A mutually exclusive projects is one in which the acceptance of one exclude the acceptance of other projects c. c. 1. Define the term net present value (NPV). The net present value is based upon the discounted cash flow technique. To implement this approach find the present value of each cash flow‚ including the initial cash flow‚ discounted at the project’s cost of capital‚ r. Sum these discounted cash flows; this sum is defined
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Chapter 10 Question 1 Marks: 1 Which of the following is NOT a capital component when calculating the weighted average cost of capital (WACC)? Choose one answer. | a. Long-term debt. | | | b. Accounts payable. | | | c. Retained earnings. | | | d. Common stock. | | | e. Preferred stock. | | Correct Marks for this submission: 1/1. Question 2 Marks: 1 For a typical firm‚ which of the following sequences is CORRECT? All rates are after taxes‚ and assume the firm operates at its
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