ASSIGNMENT 10

1. Is cash flow analysis important for valuing firms.

-If the analyst uses discounted cash flow analysis, he must analyse the source of the cash flows, in
order to forecast the cashflows

6. The following information is from the financial report of a pure equity company (one
with no net debt). In millions of dollars.

Common shareholders' equity, December 31, 174.8

2011
Common dividends, paid December 2012 8.3
Issue of common shares on December 31, 2012 34.4
Common shareholders' equity, December 31, 226.2
2012

The firm had no share repurchases during 2012. Calculate the firm's free cash flow for 2012

-For a pure equity firm Another solution:

Free Cash Flow (C-I) = d Earnings = ΔCSE + net dividend

Net Dividends for 2003: = 51.4 – 26.1 = $25.3

Dividends Paid $8.3 million C-I = OI - ΔNOA

Shares Issued $34.4 million C-I = 25.3 – 51.4 = -26.1

-$26.1 million

So, free cash flow is -$26.1 million