Question 1

Currently financial reporting does not take into account changes in prices,either at the general level or at the specific level.Many analysts believe that not taking price changes into account distorts the meaningfulness of financial reports.How do changing prices affect financial reports?

Accepted Answer

The answer of Currently financial reporting does not take into...

Question 2

Simpson Department Store
Simpson Department Stores operates retail department store chains throughout the United States. At the end of Year 10, Simpson reports debt of $5,897 million and common shareholders' equity at book value of $4,400 million. The market value of its common stock is $6,895, and its market equity beta is ..79. An equity buyout group is considering an LBO of Simpson as of the beginning of Year 11.The group intends to finance the buyout with 25 percent common equity and 75 percent debt carrying an interest rate of 10.65 percent.
-Regarding the equity buyout,compute the unlevered market equity (asset)beta of Simpson before consideration of
the LBO.Assume that the book value of the debt equals its market value.The income
tax rate is 35 percent.

Accepted Answer

The answer of Simpson Department Store
Simpson Department Stores operates retail...

Question 3

Discuss under which scenario it is appropriate to use free cash flows for all debt and equity capital stakeholders.

Accepted Answer

The answer of Discuss under which scenario it is appropriate...

Question 4

Shady Sunglasses operates retail sunglass kiosks in shopping malls.Below is information related to the company:
  
Using a five-year forecast horizon compute the sum of the present value of free cash flows accruing to all debt and common equity holders for years 2012 to 2016.

Accepted Answer

The answer of Shady Sunglasses operates retail sunglass kiosks in...

Question 5

Net income for the year for Tanglewood Inc.was $750,000,but the statement of cash flows reports that cash provided by operating activities was $860,000.Tanglewood also reported capital expenditures of $75,000 and paid dividends in the amount of $30,000.Compute Tanglewood's free cash flow.

Accepted Answer

The answer of Net income for the year for Tanglewood...

Question 6

Shady Sunglasses operates retail sunglass kiosks in shopping malls.Below is information related to the company:
  
Using a five-year forecast horizon,compute the sum of the present value of free cash flows accruing to common equity holders for years 2012 to 2016.

Accepted Answer

The answer of Shady Sunglasses operates retail sunglass kiosks in...

Question 7

Provide the rationale for using expected free cash flow in valuation.

Accepted Answer

The answer of Provide the rationale for using expected free...

Question 8

Below is information from the statement of cash flow and income statement for Garland Products,Inc.for 2012 and 2011.Marketable securities represent investments of excess cash that Garland Products does not need for operations.Garland Products' tax rate is 35%.
  
Using the above information calculate the amount of free cash flows to all debt and equity capital stakeholders for Garland Products for year 2012 and 2011.

Accepted Answer

The answer of Below is information from the statement of...

Question 9

Clarmont Corporation engaged in the following cash transactions during 2012:
  
Required:
What is Clarmont's free cash flow,assuming that it reported net cash provided by operating activities of $650,000?

Accepted Answer

The answer of Clarmont Corporation engaged in the following cash...

Question 10

What three elements are needed to value a resource when using cash flows?

Accepted Answer

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Question 11

The quarterly cash flows from operations for two computer companies are as follows:
  
Required:
1)Explain why Firm B has more credit risk than Firm A.
2)Suppose that Firm B's cash flow was $200 million higher each quarter.Explain why Firm B might still be viewed as having higher credit risk than Firm A.

Accepted Answer

The answer of The quarterly cash flows from operations for...

Question 12

Simpson Department Store
Simpson Department Stores operates retail department store chains throughout the United States. At the end of Year 10, Simpson reports debt of $5,897 million and common shareholders' equity at book value of $4,400 million. The market value of its common stock is $6,895, and its market equity beta is ..79. An equity buyout group is considering an LBO of Simpson as of the beginning of Year 11.The group intends to finance the buyout with 25 percent common equity and 75 percent debt carrying an interest rate of 10.65 percent.
-Regarding the equity buyout,compute the cost of equity capital with the new capital structure that results from the LBO.Assume a risk-free rate of 3.75percent and a market risk premium of 5.0 percent.

Accepted Answer

The answer of Simpson Department Store
Simpson Department Stores operates retail...

Question 13

Shady Sunglasses operates retail sunglass kiosks in shopping malls.Below is information related to the company:
  
Using the above information and assuming that steady-state growth in year 2017 and beyond will be 4% calculate Shady Sunglasses' current value per share.

Accepted Answer

The answer of Shady Sunglasses operates retail sunglass kiosks in...

Question 14

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?

Accepted Answer

The answer of Explain "free" cash flows.Describe which types of...

Question 15

Starting with free cash flows from operations,discuss how an analyst would measure free cash flows to common equity shareholders.

Accepted Answer

The answer of Starting with free cash flows from operations,discuss...

Question 16

Morgan Company reported the following items in 2013:
  
Required:
Calculate the following:
(1)net cash provided by operating activities,
(2)the net change in cash during 2013,and
(3)free cash flow.

Accepted Answer

The answer of Morgan Company reported the following items in...

Question 17

Simpson Department Store
Simpson Department Stores operates retail department store chains throughout the United States. At the end of Year 10, Simpson reports debt of $5,897 million and common shareholders' equity at book value of $4,400 million. The market value of its common stock is $6,895, and its market equity beta is ..79. An equity buyout group is considering an LBO of Simpson as of the beginning of Year 11.The group intends to finance the buyout with 25 percent common equity and 75 percent debt carrying an interest rate of 10.65 percent.
-Regarding the equity buyout,compute the weighted average cost of capital of the new capital structure.

Accepted Answer

The answer of Simpson Department Store
Simpson Department Stores operates retail...

Question 18

What is the purpose of a free cash flow analysis?

Accepted Answer

The answer of What is the purpose of a free...

Question 19

When should an analyst use nominal cash flows and when should an analyst use real cash flows?

Accepted Answer

The answer of When should an analyst use nominal cash...

Question 20

Below is information from the statement of cash flow and income statement for Garland Products,Inc.for 2012 and 2011.Marketable securities represent investments of excess cash that Garland Products does not need for operations.Garland Products' tax rate is 35%.
  
Using the above information calculate the amount of free cash flows for common equity shareholders for Garland Products for year 2012 and 2011.

Accepted Answer

The answer of Below is information from the statement of...

Quiz 12: Valuation: Cash-Flow-Based Approaches

Currently financial reporting does not take into account changes in prices,either at the general level or at the specific level.Many analysts believe that not taking price changes into account distorts the meaningfulness of financial reports.How do changing prices affect financial reports?

Discuss under which scenario it is appropriate to use free cash flows for all debt and equity capital stakeholders.

Shady Sunglasses operates retail sunglass kiosks in shopping malls.Below is information related to the company: Using a five-year forecast horizon compute the sum of the present value of free cash flows accruing to all debt and common equity holders for years 2012 to 2016.

Net income for the year for Tanglewood Inc.was $750,000,but the statement of cash flows reports that cash provided by operating activities was $860,000.Tanglewood also reported capital expenditures of $75,000 and paid dividends in the amount of $30,000.Compute Tanglewood's free cash flow.

Shady Sunglasses operates retail sunglass kiosks in shopping malls.Below is information related to the company: Using a five-year forecast horizon,compute the sum of the present value of free cash flows accruing to common equity holders for years 2012 to 2016.

Provide the rationale for using expected free cash flow in valuation.

Clarmont Corporation engaged in the following cash transactions during 2012: Required: What is Clarmont's free cash flow,assuming that it reported net cash provided by operating activities of $650,000?

What three elements are needed to value a resource when using cash flows?

Shady Sunglasses operates retail sunglass kiosks in shopping malls.Below is information related to the company: Using the above information and assuming that steady-state growth in year 2017 and beyond will be 4% calculate Shady Sunglasses' current value per share.

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?

Starting with free cash flows from operations,discuss how an analyst would measure free cash flows to common equity shareholders.

Morgan Company reported the following items in 2013: Required: Calculate the following: (1)net cash provided by operating activities, (2)the net change in cash during 2013,and (3)free cash flow.

What is the purpose of a free cash flow analysis?

When should an analyst use nominal cash flows and when should an analyst use real cash flows?