Case 1 Valuation Capital Budgeting Model FCFF FCFE APV CONCEPTUAL QUESTIONS Financial Modelin

Case #1: Valuation_Capital Budgeting model (FCFF,
FCFE, APV) CONCEPTUAL QUESTIONS

Due Jun 19 at 10:59pm Points 25 Questions 10
Available Jun 5 at 6am - Jun 19 at 10:59pm Time Limit None
Instructions
While this is assigned individually, you may discuss the answers
with your GROUP (the same group for the Excel portion of the
CASES).
We view this assignment as a GROUP assignment (unlike the

HWs which are INDIVIDUAL assignments).
It is not required that you speak with your group members about
this assignment, but it is allowed. The EXCEL portion MUST be
done with your group members (not individually).
This quiz was locked Jun 19 at 10:59pm.
Attempt History
Attempt Time Score
LATEST Attempt 1 4,210 minutes 25 out of 25
Score for this quiz: 25 out of 25

Submitted Jun 18 at 3:02pm
This attempt took 4,210 minutes.
Question 1 2.5 / 2.5 pts
This study source was downloaded by 100000881127121 from CourseHero.com on 02-24-2024 01:38:33 GMT -06:00
https://www.coursehero.com/file/158184352/Case-1-Valuation-Capital-Budgeting-model-FCFF-FCFE-APV-CONCEPTUAL-QUESTIONS-Financial-Modelin/
Free cash flow to the firm (FCFF), also known as "Cash Flow From
Assets" is used as a part of a Discounted Cash Flow (DCF) analysis to
obtain
The actual market value of the firm's assets.
The analyst's estimate of the market value of the firm's debt.
The actual market value of the firm's equity.
Correct! The analyst's estimate of the market value of the firm's assets.
A firm with both debt and equity have a required return called _______;
and the reason it is the appropriate required return is because
Correct!
Weighted average cost of capital, "WACC"; The assets are obtained via
"claims" which are the debt and equity of the firm. So a weighted average
of the claimants' required return become the firm's required return.
Yield to maturity (YTM); because debt is paid first in a bankruptcy situation,

so the debtholders' return is the only one that matters.
Required return to equityholders; Since the equityholders are the residual

claimant, they receive the important cash flows from the assets.
Beta; The assets are obtained via "claims" which are the debt and equity of
the firm. So a weighted average of the claimants' required return become
the firm's required return.
The free cash flow to equity model (FCFE) is used to obtain the analyst's
estimate of the market value of equity.
Correct! True
False
If a firm's capital structure (the firm's mix of debt and equity) changes, the
firm's weighted average cost of capital (WACC) will not change. This
means that cash flows from year 1 through year infinity from the FCFF
model can be discounted at a constant WACC.
True
Correct! False
In Case #1, we subtract change in net working capital from after tax EBIT.
Change in net working capital is subtracted because:
Change in NWC is effectively taking care of the accrual method of

accounting similar to the operating section of the Accounting CF
Statement. So if the change is positive, current assets increased by more
than current liabilities, so the subtraction is an INFLOW.
Correct!
accounting similar to the OPERATING section of the Accounting CF
than current liabilities, so the subtraction is an OUTFLOW.

accounting similar to the INVESTING section of the Accounting CF

accounting similar to the FINANCING section of the Accounting CF
When we deduct capital expenditures in a valuation model, this reflects

the purchase (or sale) of fixed assets, property plant and equipment,
similar to what is deducted in the INVESTING section of the Accounting
Statement of Cash Flows.
Correct! True
False
The appropriate required return for Free Cash Flow to Equity is the
levered cost of equity because the cash flows which are being discounted
only include those going to equityholders.
Correct! True
False
In Case #1, when you compute FCFF (free cash flow to the firm), you are
calculating the "value" of either a firm or a project (C2 = either 1 or 2 in
the Val Input tab). In the case of C2 = 1, you are calculating Free Cash
Flow to the Entire Firm, while when C2 = 2, you are calculating Free Cash
Flow to "the project" (which is likely one asset).
Correct! True
False
If you build your valuation model correctly (such as Case #1), specifically
by adjusting the appropriate required returns, the value of the firm should
be the same regardless of which specific model you use (that is, Free
Cash Flow to the Firm (FCFF), Free Cash Flow to Equity (FCFE), or
Adjusted Present Value (APV)).
Correct! True
False
If an analyst obtains a price per share of $42.00 from a Discounted Cash

Flow (DCF) analysis (either from the FCFF, FCFE, or APV models), and
the actual market value per share is $37.00, the analyst will likely issue a
________ recommendation of this stock.
Correct! Buy
Sell
Strong Sell
Quiz Score: 25 out of 25
Powered by TCPDF (www.tcpdf.org)

Case 1 Valuation Capital Budgeting Model FCFF FCFE APV CONCEPTUAL QUESTIONS Financial Modelin

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Case 1 Valuation Capital Budgeting Model FCFF FCFE APV CONCEPTUAL QUESTIONS Financial Modelin

Uploaded by

Copyright:

Available Formats

Case #1: Valuation_Capital Budgeting model (FCFF,

FCFE, APV) CONCEPTUAL QUESTIONS

We view this assignment as a GROUP assignment (unlike the

This quiz was locked Jun 19 at 10:59pm.

Score for this quiz: 25 out of 25

Question 1 2.5 / 2.5 pts

The actual market value of the firm's assets.

The analyst's estimate of the market value of the firm's debt.

The actual market value of the firm's equity.

Question 2 2.5 / 2.5 pts

Yield to maturity (YTM); because debt is paid first in a bankruptcy situation,

Required return to equityholders; Since the equityholders are the residual

Question 3 2.5 / 2.5 pts

Question 4 2.5 / 2.5 pts

Question 5 2.5 / 2.5 pts

Change in NWC is effectively taking care of the accrual method of

Change in NWC is effectively taking care of the accrual method of

Change in NWC is effectively taking care of the accrual method of

Question 6 2.5 / 2.5 pts

When we deduct capital expenditures in a valuation model, this reflects

Question 7 2.5 / 2.5 pts

Question 8 2.5 / 2.5 pts

Question 9 2.5 / 2.5 pts

Question 10 2.5 / 2.5 pts

If an analyst obtains a price per share of $42.00 from a Discounted Cash

Quiz Score: 25 out of 25

You might also like