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
HOW TO CALCULTE GOODWILL FOR CONSOLIDATED STATEMENTS

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

On 1 January 2008, a young artist called Michelangelo signed a contract with a charity named Art Angels, which supports young artists to do large projects. The agreement requires M

Equity shareholders, potential and present, seem primarily to the company's record of earnings. They are thus interested in relationships as earnings per share or EPS and dividends

QUESTION 1: P A RT A You  are  given with  the  following information relating to Rooney PLC . The accountant is currently developing the budget for the next three mo

1 The entry establishing a $175 petty cash fund would include a: a) debit to cash for $175 b) credit to Petty cash for $175 c) debit to petty cash for $175 d) debit to miscellaneou

i.   Explain carefully what is meant by a price earnings ratio. ii   Utilising a valuation model identify and briefly discuss the theoretical determinants of the ratio. iii

Q. Principles of banking and finance? An introduction to the principles of banking and finance. It covers a broad variety of topics using an economic perspective and aims to gi

ABC Analysis: ABC that is Always Better Control analysis is an application of the principle of 'Management by Exception' to the field of inventory control. If we seem at the in

D1=$0.65, D2=$0.74, D3=$0.79, D4=$0.84.Dividen grow continually at rate of 3% per year stating from year 5 onward.assuming the required rate of return to this stock is 12%.what wil