CNCT ACC CORPORATE FINANCE
12th Edition
ISBN: 9781264604081
Author: Ross
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Textbook Question
Chapter 7, Problem 4CQ
Break-Even Point As a shareholder of a firm that is contemplating a new project, would you be more concerned with the accounting break-even point the cash break-even point (the point at which operating cash flow is zero), or the financial break-even point? Why?
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Which of the following is NOT a conclusion drawn from M&M's Propositions 1 and 2?
a. Shareholder's required return rises with leverage.
b. The WACC does not change as capital structure change.
c. Firm value is determined by the left hand of the balance sheet the firm's assets, and the cash flow generated by them.
d. The WACC is determined by the riskiness of the company's business (assets).
e. A firm can change its market value by splitting its cash flows into different streams.
What does it mean when a company’s free cash flow is negative in one or more years?
Do negative values of free cash flow in any way alter or invalidate the notion that a company’s fair market value equals the present value of its free cash flows discounted at the company’s weighted-average cost of capital?
Suppose a company’s free cash flows were expected to be negative in all future periods. Can you conceive of any reasons for buying the company’s stock?
When we compute the EV/EBITDA multiple, i.e. the ratio of Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization, we
estimate the enterprise value of a firm by adding the values of debt and equity and netting out cash. Could you provide a reason for netting out
cash?
O a. Cash can be used to pay down debt.
O b.
Cash is easy to value.
O c.
None of the given answers is correct.
The income from cash is not part of EBITDA.
Cash is liquid.
O d.
O e.
Chapter 7 Solutions
CNCT ACC CORPORATE FINANCE
Ch. 7 - Forecasting Risk What is forecasting risk? In...Ch. 7 - Sensitivity Analysis and Scenario Analysis What is...Ch. 7 - Prob. 3CQCh. 7 - Break-Even Point As a shareholder of a firm that...Ch. 7 - Prob. 5CQCh. 7 - Real Options Why does traditional NPV analysis...Ch. 7 - Real Options The Mango Republic has just...Ch. 7 - Prob. 8CQCh. 7 - Prob. 9CQCh. 7 - Project Analysis You are discussing a project...
Ch. 7 - Sensitivity Analysis and Break-Even Point We are...Ch. 7 - Prob. 2QAPCh. 7 - Prob. 3QAPCh. 7 - Prob. 4QAPCh. 7 - Prob. 5QAPCh. 7 - Prob. 6QAPCh. 7 - Prob. 7QAPCh. 7 - Prob. 8QAPCh. 7 - Prob. 9QAPCh. 7 - Prob. 10QAPCh. 7 - Prob. 11QAPCh. 7 - Prob. 12QAPCh. 7 - Prob. 13QAPCh. 7 - Prob. 14QAPCh. 7 - Prob. 15QAPCh. 7 - Prob. 16QAPCh. 7 - Prob. 17QAPCh. 7 - Prob. 18QAPCh. 7 - Prob. 19QAPCh. 7 - Prob. 20QAPCh. 7 - Prob. 21QAPCh. 7 - Prob. 22QAPCh. 7 - Prob. 23QAPCh. 7 - Prob. 24QAPCh. 7 - Prob. 25QAPCh. 7 - Prob. 26QAPCh. 7 - Prob. 28QAPCh. 7 - Prob. 29QAPCh. 7 - Prob. 30QAP
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