2 An analyst values a levered firm bydiscounting operating free cash flows(OFCF) by the WACC after tax to find thefirm's enterprise value (EV). The marketvalue of assets (V) is found by adding cashand marketable securities to the enterprisevalue. The market capitalisation of equity (E)is calculated by subtracting interest-bearingliabilities (D) from the assets (V). Which ofthese amounts do NOT include the benefitof interest tax shields?Select one:a. EV.b. Е.с. V.d. EV, E and V.e. OFCF and D.

Given: EV is the enterprise value E is the Market value of equity OFCF is the Operating free cash…

Answered: An analyst values a levered firm by…

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter5: Risk Analysis

Section: Chapter Questions

Problem 2QE

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Similar questions

Use B&M’s data and the free cash flow valuation model to answer the following questions: What is its estimated value of operations? What is its estimated total corporate value? (This is the entity value.) What is its estimated intrinsic value of equity? What is its estimated intrinsic stock price per share?
Which of the following does nor assign a value to a business opportunity using time-value measurement tools? A. internal rate of return (IRR) method B. net present value (NPV) C. discounted cash flow model D. payback period method
Sources of cash include a. profitable operations. b. the issuance of long-term debt. c. the sale of long-term assets. d. the issuance of capital stock. e. All of these.
Suppose a firm makes the following policy changes listed. If a change means that external, nonspontaneous financial requirements (AFN) will increase, indicate this by a (+); indicate a decrease by a (−); and indicate no effect or an indeterminate effect by a (0). Think in terms of the immediate effect on funds requirements.
The IRR method assumes that cash flows are reinvested at _________. A. the internal rate of return B. the companys discount rate C. the lower of the companys discount rate or Internal rate of return D. an average of the internal rate of return and the discount rate
Cash flow analysisWhich statements are correct? Select one or more options: a- A new share issue affects the cash flow in investing activitiesAnswered and wrong b- Cash flow is affected by how items in the balance sheet are valuedAnswered and wrong c- If inventories increase, cash flow from operating activities decreasesAnswered and correct d- One way to improve its cash flow is to streamline the management of working capital
Interpretation No. 46R relates to the issue of whether an investing firm is the primary beneficiary in a variable-interest entity. When is an entity classified as a variable interest entity? Starting with free cash flows from operations, discuss how an analyst would measure free cash flows to common equity shareholders.
Indicate whether the following are true or false. Financial statement analysis is used by insiders and outsiders to identify strengths and weaknesses. Time series analysis compares one firm to another. If you want to determine the gross profit earned on each dollar of sales, use the operating profit margin ratio. The earnings per share ratio is used to predict the amount of cash dividends. Discounted cash flow values an asset based on the future value of cash flows associated with that asset
Discuss the factors that are likely to influence the desired level of cash of a companyb. Outline the advantages and disadvantages of using short term debt, as opposed to longterm debt, in the financing of working capital c. Why cash flows rather than profits are most desirable in financial management? d. Explain the term “agency relationships” and discuss the conflicts that might exist in therelationship between’i) Shareholder and managersii) Shareholders and creditorsWhat steps may be taken to overcome these conflicts?

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