Question 1

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

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Question 2

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 $400,000?

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Question 3

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

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Question 4

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 $4,658 million and common shareholders' equity at book value of $4,323 million.The market value of its common stock is $6,905,and its market equity beta is .89.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 20 percent common equity and 80 percent debt carrying an interest rate of 11 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.

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Simpson Department Stores operates retail...

Question 5

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

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Question 6

Regarding the equity buyout,compute the weighted average cost of capital of the new capital structure.

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Question 7

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

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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

Amherst,Inc.had the following balance sheet at December 31,2012:
During 2013 the following occurred.
1.Amherst liquidated its available for sale investment portfolio at a loss of $5,000.
2.A tract of land was purchased for $38,000.
3.An additional $30,000 in common stock was issued at par.
4.Dividends totaling $10,000 were declared and paid to stockholders.
5.Net income for 2013 was $35,000,including $12,000 in depreciation expense.
6.Land was purchased through the issuance of $30,000 of additional bonds.
7.At December 31,2013,Cash was $70,200,Accounts Receivable was $42,000 and Accounts Payable was $40,000.
Required:
(a)What were Amherst's cash flows from operating activities for the year ended December 31,2013?
(b)Compute Amherst's free cash flow and current cash debt coverage for 2013.
(c)How does information in the balance sheet and statement of cash flows help the user or analyst of the financial statements?

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Question 10

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

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Question 11

Morgan Company reported the following items in 2012:
  Required:
Calculate the following:
(1)net cash provided by operating activities,
(2)the net change in cash during 2012,and
(3)free cash flow.

Accepted Answer

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Question 12

A comparative balance sheet for Otto Inc.is presented below:
  Additional information:
1.Net income for 2012 was $105,000.
2.Cash dividends of $40,000 were declared and paid.
3.Bonds payable amounting to $50,000 were retired through issuance of common stock.
Required:
(a)Prepare a statement of cash flows for 2012 for Otto,Inc.
(b)Compute Otto's current cash debt coverage ratio and cash debt coverage ratio.
(c)Determine Otto Inc.'s free cash flow and comment on its liquidity and financial flexibility.

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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.

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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?

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Question 15

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?

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Question 16

Below is a condensed version of the comparative balance sheets for Stiller Corporation for 2011 and 2012:
  Additional information:
Investments were sold at a loss (not extraordinary)of $7,000; no equipment was sold; cash dividends paid were $50,000; and net income was $160,000.
Required:
(a)Prepare a statement of cash flows for 2012 for Stiller Corporation.
(b)Calculate the company's free cash flow.

Accepted Answer

The answer of Below is a condensed version of the...

Question 17

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.

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Question 18

What is the purpose of a free cash flow analysis?

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Question 19

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 4.6 percent and a market risk premium of 6.0 percent.

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Question 20

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...

Quiz 12: Valuation: Cash-Flow-Based Approaches

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

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 $400,000?

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.

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

Regarding the equity buyout,compute the weighted average cost of capital of the new capital structure.

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

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.

Morgan Company reported the following items in 2012: Required: Calculate the following: (1)net cash provided by operating activities, (2)the net change in cash during 2012,and (3)free cash flow.

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?

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?

What is the purpose of a free cash flow analysis?

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 4.6 percent and a market risk premium of 6.0 percent.

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.