..................................... 2 STOCK PRICE VALUATION .............................................................................................................. 3 Discounted Cash Flow Method (DCF) Method............................................................................. 3 Risk-free Rate (India) ............................................................................................................. 3 Beta..............................................................
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Caledonia focus on project free cash flows as opposed to the accounting profits earned by the project when analyzing whether to undertake the project? Caledonia should observe the free cash flows on the project instead of the accounting profits because free cash flows help show how well the project can pay back its initial investment. Of course it will also show the projected profit of the project yearly as well. The accounting profits do not show just cash flow‚ but instead consider things
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with the following assumptions and partial spreadsheet (a few year are left out for readability purposes): The working capital investment starts from 1994 as described in exhibit 12. This can be seen in the above income statement so that the free cash flows become slightly different from 1994. Next the terminal value (TV) is calculated at different multiples (14‚15 and 16). This is shown in table x. The terminal value at different multiple is calculated by discounting at different discount factors
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produce the following cash flows for the first two years (in millions): Year 1 2 Revenues 1200 1400 Operating Expense 450 525 Depreciation 240 280 Increase in working capital 60 70 Capital expenditures 300 350 Marginal corporate tax rate 30% 30% a. Calculate Shepard’s incremental EBIT for the 2 years. (4 points) b. Calculate Shepard’s incremental net income for the 2 years. (4 points) c. Calculate the firm’s free cash flows from the project.
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finical directors‚ who oversee the finance function and will also consult with accountants‚ tax experts and legal counsel. Another director would be a corporate treasurer who keeps in contact with banks and other finical institutions regarding cash flow. Human resource directors help to dictate on ideal
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include value of ITS in several ways: 1. WACC METHOD; discount unlevered free cash flows using the weighted average cost of capital (WACC). Because we calculate the WACC using the effective after-tax interest rate as the cost of debt‚ therefore this method incorporates the tax benefit of debt implicitly through the cost of capital. 2. ADJUSTED PRESENT VALUE METHOD (APV); first value a projects free cash flows without leverage by discounting them using the unlevered cost of capital. Then
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back into the company. This means there is less need for owners/stockholders to invest additional funds and there is less need to borrow. (Warren Buffett’s Secrets‚ n.d.) High/Free Cash Flow – A measure of financial performance and stability is calculated as operating cash flow minus capital expenditures. Free cash flow represents the cash that a company has on hand after it maintains and/or expands its asset base. This is important because it allows a company to pursue opportunities that enhance
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KENNECOTT COPPER CORPORATION CASE REPORT 1. Analyze the economic rationale of the Carborundum acquisition. Under what conditions an acquisition would be expected to add to shareholder value in general? Do any of these reasons apply to Carborundum acquisition? Prior to the consideration of Carborundum as an acquisition target‚ Kennecott‚ a copper company‚ pursued an acquisition of Peabody‚ a coal company‚ for $285 million in cash in 1968. There are two main rationales behind the acquisition of
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Re: Cash Flow Analysis and Capital Rationing Caledonia is a corporation who is interested in adding a new trending project to their project line. The project would only be in production for five years and the company has chosen team A to make an educated recommendation. Tem A will analyze the following: • Cash flow • Net present value • Internal rate or return The following analysis is provided to aid in the understanding of Team A’s final recommendation: Free Cash Flows The focus
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