computed free cash flow without late fees for 2002-2004 and projected 2005. 2004 2003 2002 2005(projected) Original OCF 1215.4 1430.3 1462.3 593 Less: EVF (622.4) (722.1) (739.5) 0 Adjusted OCF 593 708.2 722.8 593 Original ICF (1112.3) (1024.6) (1314.6) (1112.3) Original FCF (18.8) (335.5) (199.2) (18.8) Beginning balance & exchange rate effects 233.4+12.6 152.5+10.7 200.2+3.8 330.3+12.6 Free Cash Flow w/o EVF (292.1) (488.7) (587) (195.2) Free Cash
Premium Free cash flow Cash flow
debt increases‚ would the expected return of the stock be higher or lower than in part b)? (4 points) d) Explain what is wrong with the following argument: “If a firm issues debt that is risk free‚ because there is no possibility of default‚ the risk of the firm’s equity does not change. Therefore‚ risk-free debt allows the firm to get the benefit of a low cost of capital of debt without raising its cost of capital of equity.” (3 points) Solution to Part I What is important? Perfect capital
Premium Weighted average cost of capital Generally Accepted Accounting Principles Corporate finance
to a leading low-fare airline company‚ Southwest. Another critical point is that taking the book values as compared to the market values is not an accurate depiction of what the market is willing to pay. There are several components that came into play with calculating the WACC. Necessary components included: weights of debt and equity‚ cost of debt and equity‚ and the tax rate. Cost of Debt Determining the cost of debt is generally an easy process. Since JetBlue is not a public company at
Premium Discounted cash flow Weighted average cost of capital Finance
Valuation Report WAL-MART STORES‚ INC. Table of Contents Legal Disclaimer i Executive Summary 1 1 Company Overview 1 2 Valuation Methods Used 1 3 Fundamental Valuation 1 4 Market Valuation 1 5 Liquidation Value 1 Appendix 1 * Legal Disclaimer This valuation is subject to the following assumptions and limiting conditions: 1. Information‚ estimates‚ and opinions contained in this report are obtained from sources considered to be reliable. However‚ we assume no liability for
Premium Discounted cash flow Generally Accepted Accounting Principles Fundamental analysis
taken from published reports by financial analysts. We classify the errors in six main categories: 1) Errors in the discount rate calculation and concerning the riskiness of the company; 2) Errors when calculating or forecasting the expected cash flows; 3) Errors in the calculation of the residual value; 4) Inconsistencies and conceptual errors; 5) Errors when interpreting the valuation; and 6) Organizational errors. Keywords: valuation‚ company valuation‚ valuation errors JEL Classification:
Premium Net present value Discounted cash flow Fundamental analysis
TYPES OF CORPORATE DIVERSIFICATION When a firm chooses to diversify‚ it faces a decision as to how related the new business(es) is(are) to the existing businesses of the firm. When Charles Bluhdorn was CEO of a company called Gulf+Western in the 1950s‚ he diversified into a host of industries: motion pictures (Paramount Pictures‚ the makers of The Godfather‚ Chinatown‚ and other movies)‚ clothing‚ cigars‚ zinc mines‚ auto parts‚ and sugar‚ among others! In contrast‚ a company such as Cooper
Premium Strategic management Cash flow Free cash flow
assets needed. • Question 3 7.692 out of 7.692 points A company forecasts the free cash flows (in millions) shown below. The weighted average cost of capital is 13%‚ and the FCFs are expected to continue growing at a 5% rate after Year 3. Assuming that the ROIC is expected to remain constant in Year 3 and beyond‚ what is the Year 0 value of operations‚ in millions? Year: 1 2 3 Free cash flow: $15 $10 $40 Answer Selected Answer: $386 • Question 4 7.692 out
Premium Generally Accepted Accounting Principles Balance sheet Liability
rating (6 months to 24 months) may be raised.1 Stock Price Movement The graph shows the stock price movement of Infosys over the past one year.2 STOCK PRICE VALUATION Discounted Cash Flow Method (DCF) Method WACC Calculation WACC = (Cost of Equity) (E / E+D) + (Cost of Debt) (1 - Tax Rate) (D / E+D) Risk-free Rate (India) 3 month Treasury Bill Rate3 8.18% NOT USED for WACC 10 year Long Term Treasury Bond Rate4 8.23% USED for WACC The investor is expected to
Premium Discounted cash flow Free cash flow Stock market
Equity Valuation: Discounted Cash Flow and Residual Income Models Introduction Valuation plays a very important role when companies are trying to increase their value‚ raise money‚ acquire another firm or sell a subsidiary‚ also when a company decides to go public. Managers‚ investors and shareholders need to have the most accurate and reliable information in order to make decisions‚ that is why valuation is a fundamental exercise in corporate finance. It is pretty evident that whatever
Premium Generally Accepted Accounting Principles Discounted cash flow Cash flow
Cement Industry …………………………………………………….. 4-5 3. The Yamama Saudi Cement Company…………….…………………………... 6 4. Company Valuation ……………………………………………………………... 7-11 4.1. The Free Cash Flow Model (FCF) ………………………………………... 7 4.2. The Dividend Discount Model (DDM) …………………………………… 8 4.3. The Discounted Cash Flow Model (DCF) ………………………………... 8-9 4.4. Key Indicators ……………………………………………………………... 9-10 4.5. Peer Comparison …………………………………………………………... 10-11 5. Conclusion ………………………………………………………………………
Premium Discounted cash flow Financial ratio Free cash flow