Question

the Enterprise Value of a firm (using the DCF valuation methodology) is arrived at by discounting...

the Enterprise Value of a firm (using the DCF valuation methodology) is arrived at by discounting the after-tax free Cash & Capital Flows available to the firm by the Weighted Average Cost of Capital (WACC). True or False  

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

the Enterprise Value of a firm (using the DCF valuation methodology) is arrived at by discounting the after-tax free Cash & Capital Flows available to the firm by the Weighted Average Cost of Capital (WACC).  

correct answer : False

we need to calculate free cash flow to calculate the value of firm. capital flows mean investment in fixed assets and working capital. we deuct them so that we can arrive at free cashflow which is used in value of firm.

so Free cash flow (FCF) is a measure of how much cash a business generates after accounting for capital expenditures. This cash can be used for expansion, dividends, reducing debt, or other purposes.

secondly, if firm's cash flow are growing at regular rate, then we have to use a formula which also uses "g" = growth rate. if growth rate is zero, then only WACC will be considered

see image

which will clear the concept

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You are trying to calculate the enterprise value of DCB Corp using a free cash flow...
You are trying to calculate the enterprise value of DCB Corp using a free cash flow model. To that end you have put together some forecast for year 1 in the table below. Assume that free cash flows will grow at 1.5% in perpetuity and that the weighted average cost of capital of the firm (WACC) is 8%. Using this information, calculate the enterprise value of the firm. Express your answer in $-millions and round to two decimals (do not...
True or false. In DCF valuation, a company can increase its equity value by borrowing more...
True or false. In DCF valuation, a company can increase its equity value by borrowing more money provided that the after-tax cost of debt exceeds the return on capital. (Assume all other inputs are fixed.
Which of the following statements about valuing a firm using the compressed adjusted present value (CAPV)...
Which of the following statements about valuing a firm using the compressed adjusted present value (CAPV) approach is most CORRECT? a. The horizon value is calculated by discounting the expected earnings at the WACC. b. The horizon value is calculated by discounting the free cash flows beyond the horizon date and any tax savings at the WACC. c. The horizon value is calculated by discounting the free cash flows beyond the horizon date and any tax savings at the levered...
Considering the valuation of mergers, which of the following is NOT correct? A. In a merger...
Considering the valuation of mergers, which of the following is NOT correct? A. In a merger with true synergies, the post-merger value exceeds the sum of the separate companies' pre-merger values. B. Only if a target firm's value is greater to the acquiring firm than its market value as a separate entity will a merger be financially justified. C. If the capital structure is stable, and free cash flows are expected to be growing at a constant rate at the...
These statements are true of false? Explain. 1) In DCF valuation, a company can increase its...
These statements are true of false? Explain. 1) In DCF valuation, a company can increase its return on equity (ROE) by increasing its leverage ratio if and only if its return on capital (ROC) exceeds its after-tax cost of debt (rd x (1 - Tc)). (Assume all other inputs are fixed.) 2) In the context of the dividend discount model (DDM), a company can always increase its intrinsic equity value by increasing its dividend payout ratio if and only if...
The corporate valuation model, the price-to-earnings (P/E) multiple approach, and the economic value-added (EVA) approach are...
The corporate valuation model, the price-to-earnings (P/E) multiple approach, and the economic value-added (EVA) approach are some examples of valuation techniques. The corporate valuation model is similar to the dividend-based valuation that you’ve done in previous problems, but it focuses on a firm’s free cash flows (FCFs) instead of its dividends. Some firms don’t pay dividends, or their dividends are difficult to forecast. For that reason, some analysts prefer to use the corporate valuation model, which maintains that the value...
A firm has projected free cash flows of $575,000 for Year 1, $625,000 for Year 2,...
A firm has projected free cash flows of $575,000 for Year 1, $625,000 for Year 2, and 750,000 for Year 3. The projected terminal value at the end of Year 3 is $8,000,000. The firm's Weighted Average cost of Capital (WACC) is 12.5%. Please post the answer in an Excel Document Determine the Discounted Cash Flow (DCF) value of the firm. Recommend acceptance of this project using net present value criteria. Display your calculations.
Project valuation Allows you to decide whether or not a foreign project is positive NPV to...
Project valuation Allows you to decide whether or not a foreign project is positive NPV to the home firm Allows you to decide if there are better investment opportunities available in the target country Involves discounting USD cash flows at the subsidiary’s cost of capital Involves discounting foreign currency cash flows at the home firm’s cost of capital
P1.4 Basic DCF Valuation #2: A company has expected free cash flows of $1.45 million, $2.93...
P1.4 Basic DCF Valuation #2: A company has expected free cash flows of $1.45 million, $2.93 million, and $3.2 million in the next three years. Beginning in Year 4, the expected cash flows will grow (or decrease) by 25% in perpetuity. Measure the value of this company as of today using both a 10% and 12% discount rate.
3.  3: Stocks and Their Valuation: Corporate Valuation Model The recognition that dividends are dependent on earnings,...
3.  3: Stocks and Their Valuation: Corporate Valuation Model The recognition that dividends are dependent on earnings, so a reliable dividend forecast is based on an underlying forecast of the firm's future sales, costs and capital requirements, has led to an alternative stock valuation approach, known as the corporate valuation model. The market value of a firm is equal to the present value of its expected future free cash flows plus the market value of its non-operating assets: Free cash flows...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT