Question 1

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

Accepted Answer

The answer of The risk-adjusted discount rate used to compute...

Question 2

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

Accepted Answer

The answer of ________________________________________ typically include accounts payable, accrued expenses,...

Question 3

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 3.75percent and a market risk premium of 5.0 percent.

Accepted Answer

The answer of Regarding the equity buyout, compute the cost...

Question 4

Houston, Inc.
The following information pertains to Houston, Inc. a manufacturer of belt buckles:
 What is Houston's free cash flow for all debt and equity holders for year 2012?

Accepted Answer

A)  $564 
B)  $399 
C)  $324 
D)  $202

Question 5

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 ____________________.

Accepted Answer

The answer of The present value of future free cash...

Question 6

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.

Accepted Answer

The answer of The cash-flow-based valuation approach measures and values...

Question 7

Net cash flow from operations ________________ dividends equals_______________________

Accepted Answer

The answer of Net cash flow from operations ________________ dividends...

Question 8

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

Accepted Answer

The answer of When should an analyst use nominal cash...

Question 9

Provide the rationale for using expected free cash flow in valuation.

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The answer of Provide the rationale for using expected free...

Question 10

Discuss under which scenario it is appropriate to use free cash flows for all debt and equity capital stakeholders.

Accepted Answer

The answer of Discuss under which scenario it is appropriate...

Question 11

If the objective is to value operating assets net of operating liabilities of a firm then the appropriate free cash flow measure to be used is ______________________________________________________________________.

Accepted Answer

The answer of If the objective is to value operating...

Question 12

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:

Accepted Answer

A)  required return on equity capital. 
B)  weighted average cost of capital. 
C)  risk-free rate. 
D)  market risk premium.

Question 13

What is the purpose of a free cash flow analysis?

Accepted Answer

The answer of What is the purpose of a free...

Question 14

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?

Accepted Answer

The answer of Explain "free" cash flows. Describe which types...

Question 15

A disadvantage of the free cash flow valuation method is:

Accepted Answer

A)  The terminal value tends to dominate the total value in many cases. 
B)  The projection of free cash flows depends on earnings estimates. 
C)  The free cash flow method is not rigorous. 
D)  The free cash flow method is not used widely in practice.

Question 16

The conceptual framework for free cash flows separates all assets and liabilities into the following categories:

Accepted Answer

A)  Current and non-current 
B)  Monetary and non-monetary 
C)  Operating and non-operating 
D)  Operating and financial

Question 17

Financial liabilities include all of the following except:

Accepted Answer

A)  mortgages payable 
B)  current maturities of long-term debt 
C)  accrued taxes 
D)  bonds payable

Question 18

Even in relatively efficient securities markets, ______ is observable but ______ is not; therefore, ______ must be estimated.

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The answer of Even in relatively efficient securities markets, ______...

Question 19

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.

Accepted Answer

The answer of Steady-state growth in ___________________________________ could be driven...

Question 20

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

Accepted Answer

The answer of Regarding the equity buyout, compute the weighted...

Exam 12: Valuation: Cash-Flow Based Approaches