Exam 12: Valuation: Cash-Flow Based Approaches

Changes in general price levels due to inflation or deflation cause the ______________________________ of the monetary unit to increase or decrease ______________

Plough Corporation reports the following information:  Net cash provided by operating activities   $300,000  Average current liabilities                             150,000  Average long-term liabilities                         100,000  Dividends paid                                               80,000  Capital expenditures                                     140,000  Payments of debt                                            35,000 Plough's free cash flow is:

The forecasting and valuation process is particularly difficult for ______________________________ when the near term free cash flows tend to be negative.

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

The analyst can use expectations of the dividends to be paid to the investor or the free cash flows to be generated by the firm (that will ultimately be paid to the investor) as equivalent approaches to measure the ____________ expected payoffs to shareholders.

If an analyst wants to value a potential investment in the common stock equity in a firm, the relevant cash flows the analyst should use are:

If an analyst wants to value a potential investment in the net operating assets of a division of another firm, the analyst should discount the projected free cash flows at the:

For most firms, ______________________________ include cash and short-term investment securities, accounts receivable, inventory, property, plant and equipment, intangible assets and investments in affiliated companies.

Which of the following is not a problem with using a dividend-based valuation formula?

Financial assets include all of the following except:

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

Sun Corporation reports the following information:  Net cash provided by operating activities   $255,000  Average current liabilities                             150,000 Average long-term liabilities                         100,000 Dividends paid                                               60,000 Capital expenditures                                     110,000 Payments of debt                                            35,000 Sun's free cash flow is:

Simpson Department Store Simpson Department Stores operates retail department store chains throughout the United States. At the end of Year 10, Simpson reports debt of $5,897 million and common shareholders' equity at book value of $4,400 million. The market value of its common stock is $6,895, and its market equity beta is 0.79. An equity buyout group is considering an LBO of Simpson as of the beginning of Year 11.The group intends to finance the buyout with 25 percent common equity and 75 percent debt carrying an interest rate of 10.65 percent. Regarding the equity buyout, compute the unlevered market equity (asset) beta of Simpson before consideration of the LBO. Assume that the book value of the debt equals its market value. The income  tax rate is 35 percent.

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

________________ is an estimate of systematic risk based on the degree of covariation between a firm's stock returns and an index of stock returns for all firms in the market.

If an analyst wants to value a potential investment in the net operating assets of a division of another firm, the relevant cash flows the analyst should use are:

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

Continuing free cash flows represent:

What three elements are needed to value a resource when using cash flows?

Shady Sunglasses operates retail sunglass kiosks in shopping malls. Below is information related to the company: 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.