Discounted cash flow and terminal growth rate, Financial Accounting

Answer the following questions relating to Discounted Cash Flow (DCF) projections and valuations.

(a)    Michael Hudson asks a rhetorical question (tongue in cheek): "What's not to like about free cash flows? They're free! Duh!" Briefly, what is your understanding of free cash flows? Also, does a negative projected free cash flow in a future year imply that the firm is not operating profitably in that year? Why or why not?

(b)    "Wussup with the whole little 'g' thing?" asks James DeStephens. He is referring to the perpetual growth rate assumed to hold after the terminal date T, beyond which details of future Income Statements and Balance Sheets are not explicitly projected. Explain briefly why we commonly assume that free cash flows grow at a constant assumed rate g after the terminal date.

(c)    "This is so confusing," mutters an exasperated Apoorva Patel, "I've been brought up to believe that growth is a good thing. High growth should be better than low growth." He was referring to the discussion in class about PDI's assumed terminal growth rate. The different growth scenarios considered all showed the same valuation. Is it possible for higher growth to result in reduced value? Explain why or why not?










Posted Date: 2/28/2013 12:24:48 AM | Location : United States

Related Discussions:- Discounted cash flow and terminal growth rate, Assignment Help, Ask Question on Discounted cash flow and terminal growth rate, Get Answer, Expert's Help, Discounted cash flow and terminal growth rate Discussions

Write discussion on Discounted cash flow and terminal growth rate
Your posts are moderated
Related Questions
Case study Josephine Josephine has just landed her first job out of graduate school.  She is lucky enough to be working for one of the Big Four, earning $50,000 per year.  S

How useful is accounting information? No one would seriously claim that accounting information fully meets all of the needs of every various user groups. Accounting is still a

PROTECTION OF PROPERTY OF A DECEASED PERSON (a) No person may take possession of or dispose of or otherwise intermeddle with, any free property of a deceased person, unless he

Activity-Based Costing (ABC) An accounting method that assigns identifiable costs and allocates common costs to definite product lines or business fragments Also known as pro

Q. Define about SME FINANCE? SMEs contribute in a significant way to many economies in the world. Moreover generating income, in often large proportions in relation to GNP acro

ADVANCEMENT Trustees may apply not more than half of the presumptive or vested share of the capital held in trust for any person (infant or adult) for  his advancement or ben

PROOF OF DEBTS The following rules apply as to the proving of debts: 1) A creditor has no right to vote or receive dividends until his debt is proved to the satisfaction of th