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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?
Q. Prior period adjustments a. may only increase retained earnings. b. may only decrease retained earnings. c. may either increase or decrease retained earnings. d. do not affect r
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Cashflows from financing activities Financing activities are those activities that will lead to either an increase or decrease in shareholders funds and long-term liabilities.
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An entity had the following transactions during the year ended 31 December 2010: The entity invested in a convertible bond on its issue date. The bond matures four years aft
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