Exam 12: Valuation: Cash-Flow-Based Approaches

Continuing free cash flows represent

When calculating free cash flows to common equity shareholders, financing activities do not include:

All of the following are logical steps that enable the analyst to determine reliable estimates of value except:

Regarding the equity buyout, compute the weighted average cost of capital of the new capital structure.

The conceptual framework for free cash flows separates the balance sheet equation into the following categories:

________________________________________ typically include accounts payable, accrued expenses, accrued taxes, deferred taxes, pension obligations and other retirement benefit obligations.

Financial statements for Hawk Company are presented below: Required: Calculate the company's free cash flow.

Morgan Company reported the following items in 2012: Net income \ 40,000 Dividends paid 5,000 Increase in accounts receivable 10,000 Increase in accounts payable 7,000 Purchase of equipment (capital expenditure) 8,000 Depreciation expense 4,000 Issue of notes payable 20,000 Required: Calculate the following: (1) net cash provided by operating activities, (2) the net change in cash during 2012, and (3) free cash flow.

Clarmont Corporation engaged in the following cash transactions during 2012: Sale of land and building \ 191,000 Purchase of treasuy stock 40,000 Puchase of land 37,000 Payment of cash dividend 95,000 Purchase of equipment 53,000 Issuance of common stock 147,000 Retirement of bonds 100,000 Required: What is Clarmont's free cash flow, assuming that it reported net cash provided by operating activities of $400,000?

Below is a condensed version of the comparative balance sheets for Stiller Corporation for 2011 and 2012: 2012 20111 Cash \ 157,000 \7 8,000 Accounts Receivable 180,000 185,000 Investments 52,000 74,000 Equipment 298,000 240,000 Less Accumulated depreciation (106,000) (89,000) Curent liabilities 134,000 151,000 CommonStock 160,000 160,000 RetainedEarnings 287,000 177,000 Additional information: Investments were sold at a loss (not extraordinary) of $7,000; no equipment was sold; cash dividends paid were $50,000; and net income was $160,000. Required: (a) Prepare a statement of cash flows for 2012 for Stiller Corporation. (b) Calculate the company's free cash flow.

Shady Sunglasses operates retail sunglass kiosks in shopping malls. Below is information related to the company: (dolar anounts in thousands) Net Cash Flow from Operations 564 628 854 1059 1345 1655 Interest Expense after Tax 122 134 148 145 155 148 Decrease (Increase) in Cash Required for Operations -75 -54 -48 -32 -61 -48 Net Cash Flow from Investing -287 -300 -310 -285 -294 -277 Net Cash from Debt Financing 210 204 140 85 -40 -46 Present Value Factors =8.5\% 0.922 0.849 0.783 0.722 0.665 Using a five-year forecast horizon, compute the sum of the present value of free cash flows accruing to common equity holders for years 2012 to 2016.

An equity security with systematic risk equal to the average amount of systematic risk of all equity securities in the market

Starting with cash flow from operations and adjusting for net interest after tax and cash requirements for liquidity equals

Operating liabilities include all of the following except

Shady Sunglasses operates retail sunglass kiosks in shopping malls. Below is information related to the company: \begin{array}{c}\begin{array}{l}\text {(dolar aniounts int thousaids)}\\\text {Net Cash Flow from Operations}\\\text {Interest Expense after tax}\\\text {Decrease (Increase) in Cash Required }\\\text {for Operations Net Cash Flow from Investing}\\\text {Net Cashfrom Debt Financing}\\\\\text {Present Value Factors \left(R_{0}=8.5 \%\right) }\\\text {Common Shares Outstanding}\\\text {in thousands}\end{array}\begin{array}{l}\underline{\text { 2012 }}\\564 \\122 \\-75 \\-287 \\210 \\\\0.922 \\1,512\\\\ \end{array}\begin{array}{l}\underline{2013}\\628 \\134 \\-54 \\-300 \\204 \\\\0.849\\\\\\ \end{array}\begin{array}{l}\underline{2014}\\854\\148 \\-48 \\-310 \\140 \\\\0.783\\\\\\ \end{array}\begin{array}{l}\underline{2015}\\1059 \\145 \\-32 \\-285 \\85 \\\\0.722\\\\\\ \end{array}\begin{array}{l}\underline{2016}\\1345 \\155 \\-61 \\-294 \\-40\\\\0.665\\\\ \\\end{array}\begin{array}{l}\underline{\text { 2017} } \\1655 \\148 \\-48 \\-277 \\-46\\\\\\\\\\ \end{array}\end{array} Using the above information and assuming that steady-state growth in year 2017 and beyond will be 4% calculate Shady Sunglasses' current value per share.

Below is information from the statement of cash flow and income statement for Garland Products, Inc. for 2012 and 2011. Marketable securities represent investments of excess cash that Garland Products does not need for operations. Garland Products' tax rate is 35%. Using the above information calculate the amount of free cash flows for common equity shareholders for Garland Products for year 2012 and 2011.

The present value of future free cash flows valuation method focuses on free cash flows, a base that economists argue has more economic meaning than ____________________.

Shady Sunglasses operates retail sunglass kiosks in shopping malls. Below is information related to the company: (dolar aniounts int thousaids) Net Cash Flow from Operations Interest Expense after tax Decrease (Increase) in Cash Required for Operations Net Cash Flow from Investing Net Cashfrom Debt Financing Present Value Factors ( WACC=8.5 \% ) 564 122 -75 -287 210 0.922 628 134 -54 -300 204 0.849 854 148 -48 -310 140 0.783 1059 145 -32 -285 85 0.722 1345 155 -61 -294 -40 0.665 1655 148 -48 -277 -46 Using a five-year forecast horizon compute the sum of the present value of free cash flows accruing to all debt and common equity holders for years 2012 to 2016.

Starting with free cash flows from operations, discuss how an analyst would measure free cash flows to common equity shareholders.

Changes in general price levels cause the ______________________________ of the monetary unit to change over time.