Free Cash Flow and Corporate Valuation Model
True/False
Indicate whether the statement is true or false.
_F___ 1. The corporate valuation model cannot be used unless a company doesn 't pay dividends.
_T___ 2. Free cash flows should be discounted at the firm 's weighted average cost of capital to find the value of its operations.
_F___ 3. Valuebased management focuses on sales growth, profitability, capital requirements, the weighted average cost of capital, and the dividend growth rate.
_F___ 4. Two important issues in corporate governance are (1) the rules that cover the board 's ability to fire the CEO and (2) the rules that cover the CEO 's ability to remove members of the board.
_F___ 5. If a company 's expected return on …show more content…
____ 16. Suppose Leonard, Nixon, & Shull Corporation 's projected free cash flow for next year is $100,000, and FCF is expected to grow at a constant rate of 6%. If the company 's weighted average cost of capital is 11%, what is the value of its operations? a.  $1,714,750  b.  $1,805,000  c.  $1,900,000  d.  $2,000,000  e.  $2,100,000 
____ 17. Zhdanov Inc. forecasts that its free cash flow in the coming year, i.e., at t = 1, will be –$10 million, but its FCF at t = 2 will be $20 million. After Year 2, FCF is expected to grow at a constant rate of 4% forever. If the weighted average cost of capital is 14%, what is the firm 's value of operations, in millions? a.  $158  b.  $167  c.  $175  d.  $184  e.  $193 
____ 18. Leak Inc. forecasts the free cash flows (in millions) shown below. If the weighted average cost of capital is 11% and FCF is expected to grow at a rate of 5% after Year 2, what is the Year 0 value of operations, in millions? Assume that the ROIC is expected to remain constant in Year 2 and beyond (and do not make any halfyear adjustments).
Year:  1  2  Free cash flow:  –$50  $100 
a.  $1,456  b.  $1,529  c.  $1,606  d.  $1,686  e.  $1,770 
____ 19. A

Free Cash Flow for Starbucks
613 Words  2 Pagescondition to McDonald's. The formula for free cash flow can be found at Investopedia (2012). The free cash flow for Starbucks is $1.8 billion and for McDonalds it is $9.964 billion. Starbucks has a healthy cash position, but saw its cash flow from operations decline last year, which is not an encouraging sign. McDonalds also has ample cash on its balance sheet, and saw its cash flow from operations increase significantly last year. With respect to cash flow, McDonalds appears be the better of the…

Free Cash Flow, Issuance Costs, And Macroeconomics Risk
6500 Words  26 PagesFree Cash Flow, Issuance Costs, and Macroeconomics Risk Qiaozhi Hu Questrom School of Business Boston University June 30, 2015 I thank Dirk Hackbarth, Andrew Lyaso and MF930 participants at Boston University for helpful comments. Send correspondence to Qiaozhi Hu, Boston University Questrom School of Business, 595 Commonwealth Ave, Boston, MA 02215, USA; telephone: (732)8091105. Email: qiaozhih@bu.edu. 1 Free Cash Flow, Issuance Costs, and Macroeconomics Risk Abstract This research proposal…

Free Cash Flow
1481 Words  6 PagesFree cash flow In corporate finance, free cash flow (FCF) is cash flow available for distribution among all the securities holders of an organization. They include equity holders, debt holders, preferred stock holders, convertible security holders, and so on. G. Bennett Stewart  the "economic model of value holds that share prices are determined by just two things: the cash to be generated over the lifetime of a business and the risk of the cash receipts”. GSB (1990), “The Quest for Value”…

TUTORIAL 7 – Discounted Cash Flow Valuation I
1323 Words  6 PagesTUTORIAL 7 – Discounted Cash Flow Valuation I {Ross chapter 5: Critical thinking 1; Questions 4, 5, 7} Critical Thinking Question 5.1 – Annuity Period As you increase the length of time involved, what happen to the present value of an annuity? What happens to the future value? duration increase, present value decrease (indirect relationship) duration increase future value increase (direct relationship) Assuming positive cash flow and a positive interest rate, both the present and the future…

Finance: Free Cash Flow
1835 Words  8 Pagesto Note on Sample Cash Flow Template. Question 1 (5 points) The project with the highest IRR is always the project with the highest NPV. Your Answer   Score  Explanation  True     False  ✔  5.00  Correct. Try now to sort this out in different contexts,  Total   5.00 / 5.00   Question Explanation This is all about the fundamental difference between IRR and NPV. Question 2 (10 points) Ann Arbor is considering offering public bus service for free. Setting up the…

Free Cash Flow and Butler
4141 Words  17 Pagesthe largest independent automotive parts wholesaler in France by the end of the 1990s. This report starts with an analysis of the opportunities and risks for the AD deal and determines whether Butler should make a proposal or not. Hereafter, a valuation of AD is given. In the next paragraph the chances for European expansion are evaluated. Then the structure of the compensation package to Chavanne is determined and at the end a short conclusion of this case is given. 1. Should Walter Butler…

The Cash Flow Of The Free Cash Flows ( Fcf )
1609 Words  7 PagesFirm Valuation As shown in Exhibit 4, in order to value a company we first started by calculating the free cash flows (FCF) year by year. In order to do so, we decided to use the forecasted revenue numbers from Capital IQ and calculate all the other metrics by using the trends we saw in last three years (Exhibit 3). The company can allocate free cash flow in several ways, including but not limited to: repurchasing stock, reinvesting for growth and paying out dividends. After calculating the free cash…

Balance Sheet and Free Cash Flows
1155 Words  5 PagesBrocoum Courtney Delia Stephanie Doherty David Dubois Radu Oprea December 19th, 2009 Contents Objectives 1 Management Summary 1 Financial Health 1 Financial Forecast for 2002 and 2003 3 Key Driver Assumptions 5 Star River WACC 5 Free Cash Flows of the Packaging Machine Investment 7 Appendices 7 i. Objectives This report seeks to answer the following five questions about Star River Electronics Ltd.: 1. Assess the current financial health and recent financial performance…

Free Cash Flow and Total Value
1218 Words  5 Pages1 – Methodological Approach In this case, American CC – the intended acquirer of AirThread Connections will use leveraged buyout (LBO) model, which means the company will finance the acquisition through bank loan or some other borrowing methods. Hence, the debttoequity ratio will change in time. Since we will need to estimate the discount rate any time the capital structure changes, neither WACC nor APV would be reliable alone. Therefore, Ms. Zhang should use the combination of WACC and APV…

Cash Flow Model And The Dividend Discount Model
1272 Words  6 Pagesthe discounted cash flow model and the dividend discount model. The purpose of the discounted model is to determine the value of the firm and its stock. It uses future cash flow projections discounted back to the present values to estimate the potential for the investment. (Discounted Cash Flow (DCF), n.d.) Another valuation method is the dividend discount model. This method uses predicted dividends and discounting them back to the present value to obtain a value price. Both models were used to evaluate…
More about Free Cash Flow and Corporate Valuation Model

Free Cash Flow for Starbucks
613 Words  2 Pages 
Free Cash Flow, Issuance Costs, And Macroeconomics Risk
6500 Words  26 Pages 
Free Cash Flow
1481 Words  6 Pages 
TUTORIAL 7 – Discounted Cash Flow Valuation I
1323 Words  6 Pages 
Finance: Free Cash Flow
1835 Words  8 Pages 
Free Cash Flow and Butler
4141 Words  17 Pages 
The Cash Flow Of The Free Cash Flows ( Fcf )
1609 Words  7 Pages 
Balance Sheet and Free Cash Flows
1155 Words  5 Pages 
Free Cash Flow and Total Value
1218 Words  5 Pages 
Cash Flow Model And The Dividend Discount Model
1272 Words  6 Pages