Exam 12: Valuation: Cash-Flow-Based Approaches

One advantage of the free cash flow valuation method is cash is the medium of exchange and therefore is a fundamental source of ________________________

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:

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

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.

Morgan Company reported the following items in 2013: Net income \ 50,000 Dividends paid 6,000 Increase in accounts receivable 12,000 Increase in accounts payable 8,000 Purchase of equipment (capital expenditure) 9,000 Depreciation expense 3,500 Issue of notes payable 15,000 Required: Calculate the following: (1)net cash provided by operating activities, (2)the net change in cash during 2013,and (3)free cash flow.

Clarmont Corporation engaged in the following cash transactions during 2012: Sale of land and building 209,000 Purchase of treasury stock 35,000 Purchase of land 38,000 Payment of cash dividend 105,000 Purchase of equipment 54,000 Issuance of common stock 150,000 Retirement of bonds 97,500 Required: What is Clarmont's free cash flow,assuming that it reported net cash provided by operating activities of $650,000?

What is the purpose of a free cash flow analysis?

Financial assets include all of the following except:

Houston, Inc. The following information pertains to Houston, Inc.a manufacturer of belt buckles: (dollar amounts in thousands) Net Cash Flow from Operations Interest Expense after tax Decrease (Increase) in Cash Required for Operations Net Cash Flow from Investing Net Cash from Debt Financing Present Value Factors for 8.5 \% 564 628 854 1059 1345 1655 122 134 148 145 155 148 -75 -54 -48 -32 -61 -48 -287 -300 -310 -285 -294 -277 210 204 140 85 -40 -46 0.922 0.849 0.783 0.722 0.665 -What is Houston's free cash flow for common equity holders for year 2012?

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

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%. Cash Flow Statement (in thousands) 12/30/2012 12/30/2011 Cash from operations Net cash provided by operations 106,484 113,880 Cash from investments Increase) decrease in property \& plant -31,536 -47,960 Acquisition (disposition) of subsidiaries or other business -702 -19 Increase (decrease) in marketable securities -18,825 380,737 Net cash provided by (used in) investing -51,063 332,758 Cash from financing ssuances (purchases) of equity shares -370 -434,570 ssuances (repayment) of debt - - ncrease (decrease) in bank, or other borrowings -25,000 25,000 Dividends, other distributions -29,377 -37,202 Net cash provided by (used in) financing -54,747 -446,772 Net change cash \& cash equivalents 674 -134 Cash and cash equivalents at start of year 3,255 3,389 Cash and cash equivalents at year-end 3,929 3,255 Interest Revenue 50 35 Interest paid 394 1400 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.

Currently,financial reporting does not take into account changes in prices,either at the general level or at the specific level.Many analysts believe that not taking price changes into account distorts the meaningfulness of financial reports.How do changing prices affect financial reports?

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.

Shady Sunglasses operates retail sunglass kiosks in shopping malls.Below is information related to the company: (dollar amounts in thousands) Net Cash Flow from Operations Interest Expense after tax Decrease (Increase) in Cash Required for Operations Net Cash Flow from Investing Net Cash from Debt Financing Present Value Factors =8.5\% Common Shares Outstanding in thousands 564 628 854 1059 1345 1655 122 134 148 145 155 148 -75 -54 -48 -32 -61 -48 -287 -300 -310 -285 -294 -277 210 204 140 85 -40 -46 0.922 0.849 0.783 0.722 0.665 1512 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.

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

Net cash flow from operations ________________ dividends equals_______________________

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:

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

When should an analyst use nominal cash flows and when should an analyst use real cash flows?

If a firm generates a rate of return on __________________________________________________ equal to the discount rate used by the investor then it does not matter if an analyst uses cash flows to the investor or cash flows to the firm.