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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?
what are the activities?
Q. Retained earnings is increased by each of the following except a. some disposals of treasury stock. b. net income. c. prior period adjustments. d. All of these increase retained
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Refer to the Consolidated Statements of Shareholders' Equity (pp. 62-63), Consolidated Statements of Cash Flow, including an abstract from Note 2, Cash Flow Information (pp. 61 and
An investor holds a bullish view for the equity market over the next twelve months and wishes to recalibrate his portfolio to reflect this view. The investor's portfolio consists o
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Focus Company issued a $30,000, 20 year bond with a stated interest rate of 7%. Assume interest payments are made annually. What is the selling price of the bond if the market ra
Income Statement 2013 2012 2011 Vertical Anaylsis Vertical Anayl Horizontal Net revenue 5,075,390 4,763,180 4,158,507 year 1 year 2 Anaylsis Cost of goods 1,377,242 1,297,102 1,134
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