Exam 12: Valuation: Cash-Flow-Based Approaches

Regarding the equity buyout,compute the cost of equity capital with the new capital structure that results from the LBO.Assume a risk-free rate of 4.6 percent and a market risk premium of 6.0 percent.

Steady-state growth in free cash flows could be driven by long-run expectations for growth attributable to

What is the purpose of a free cash flow analysis?

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

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

Explain "free" cash flows.Describe which types of cash flows are free and which are not.How do free cash flows available for debt and equity stakeholders differ from free cash flows available for common equity shareholders?

Below is a condensed version of the comparative balance sheets for Stiller Corporation for 2011 and 2012: 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.

If an analyst wants to value a potential investment in the common stock equity of a firm,the analyst should discount the projected free cash flows at the

Nonsystematic risk factors would include all of the following except:

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

The risk-adjusted discount rate used to compute the present value of all the projected free cash flows for common equity shareholders equals the _______________________________________________________.

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 ____________________.

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 to all debt and equity capital stakeholders for Garland Products for year 2012 and 2011.

The cash-flow-based valuation approach measures and values the cash flows that are "free" to be ________________________________________ unencumbered by necessary reinvestments in operating assets or required payments to debt holders.

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

Steady-state growth in ___________________________________ could be driven by long-run expectations for growth attributable to economy-wide inflation,general economic productivity,the population,or long-run growth in industry's sales. ree cash flows

One disadvantage of the free cash flow valuation method is that many times the ______________________________ dominates the total value.

Net income for the year for Tanglewood Inc.was $750,000,but the statement of cash flows reports that cash provided by operating activities was $860,000.Tanglewood also reported capital expenditures of $75,000 and paid dividends in the amount of $30,000.Compute Tanglewood's free cash flow.

If cash flow projections include the effect of inflation then the discount rate used should be a ____________________ rate.

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