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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?
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AMALGAMATIONS Two sole traders and a partnership,two or more partnerships or a sole trader and other partnerships may combine or join together to forma a single partnership. The
like Amazon.com face with respect to safeguarding its assets? What types of controls do you think it already has in place to minimize these risks?
LANDLORD'S RIGHT OF DISTRESS The Landlord's right to distrain for arrears of rent is not lost on the tenant's bankruptcy, but 1) Distress can only be levied after commencement
As of January 1, 2011, the partnership of Canton, Yulls, and Garr had the following account balances and percentages for the sharing of profits and losses: Cash 80,000 non cash
1. Firm L has debt with a market value of $200,000 and a yield of 9%. The firm's equity has a market value of $300,000, its earnings are growing at a rate of 5%, and its tax rate i
Q. Evlaute Expected value of sales volume? (17500 × 0·3) + (20000 × 0·6) + (22500 × 0·1) = 19500 units Expected NPV = (((19500 × 1·35) - 10000) × 3·605) - 50000 = $8852 W
Realisation of assets 1. Divisible property : The ownership of the company's property does not vest in the liquidator (unless the court makes a vesting order: s.240); but
You have just started work for Warren Co. as part of the controller's group involved in current financial reporting problems. Jane Henshaw, controller for Warren, is interested in
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