Reading 41: Free Cash Flow Valuation-LOS i 习题精选 capital, valuation, investment, face, 2010

土豆妮

Session 12: Equity Investments: Valuation Models
Reading 41: Free Cash Flow Valuation

LOS i: Critique the use of net income and EBITDA as proxies for cash flow in valuation.

 

 

 

Assuming that the investment in fixed capital and working capital offset each other, free cash flow to the firm (FCFF) may be proxied by net income if:

A) earnings before interest and taxes (EBIT) equals depreciation.

B) non-cash charges and interest charges are zero.

C) non-cash charges and interest charges are equal.

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The answer is shown by the relationship between FCFF and net income: FCFF = NI + NCC + Int (1 – tax rate) – FCInv – WCInv. Further: FCFF = EBIT (1 – tax rate) + Dep – FCInv – WCInv, which assumes that depreciation is the only non-cash charge.

土豆妮

If the investment in fixed capital and working capital offset each other, free cash flow to the firm (FCFF) may be proxied by:

A) earnings before interest and taxes (EBIT).

B) net income plus after-tax interest.

C) after-tax EBIT plus non-cash charges.

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The answer is indicated by the definition of FCFF: FCFF = EBIT (1 – tax rate) + Dep – FCInv – WCInv, which assumes that depreciation is the only non-cash charge. Further: FCFF = NI + NCC + Int (1 – tax rate) – FCInv – WCInv.

土豆妮

If the investment in fixed capital and working capital offset each other, free cash flow to the firm (FCFF) may be proxied by:

A) earnings before interest and taxes (EBIT).

B) net income plus after-tax interest.

C) net income plus non-cash charges plus after-tax interest.

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The answer is indicated by the definition of FCFF: FCFF = NI + NCC + Int (1 – tax rate) – FCInv – WCInv. The relationship between net income and FCFF is indicated by: NI = EBIT (1 – tax rate) – Int (1 – tax rate).