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What does required income represent

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Assignment

1)

i. Free Cash Flows. Explain ‘‘free'' cash flows.

• Describe which types of cash flows are free and which are not.

• How do free cash flows available for debt and equity stakeholders differ from free cash flows available for common equity shareholders?

ii. Free-Cash-Flows-Based Valuation Approaches.

• Explain the theory behind the free cash flows valuation approaches.

• Why are free cash flows value-relevant to common equity shareholders when they are not cash flows to those shareholders but rather are cash flows into the firm?

2)

i. Required Income:

• Explain required income. What does required income represent? How is required income conceptually analogous to interest expense?

ii. Residual Income:

• Explain residual income. What does residual income represent? What does residual income measure?

3)

i. Value Determinants.

• What are the fundamental determinants of share value, and how do they affect market-based valuation multiples, such as market-to-book and price- earnings ratios?

ii. Residual ROCE. Explain residual ROCE (return on common shareholders' equity).

• What does residual ROCE represent? What does residual ROCE measure?

Reference no: EM131735244

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