Reading 41: Free Cash Flow Valuation-LOS l 习题精选 face, equity, center, 2010

土豆妮

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

LOS l: Explain how sensitivity analysis can be used in FCFF and FCFE valuations.

 

 

 

 

A firm has:

• Free cash flow to equity = $4.0 million.
• Cost of equity = 12%.
• Long-term expected growth rate = 5%.
• Value of equity per share = $57.14 per share. 

What will happen to the value of the firm if free cash flow to equity decreases to $3.2 million?> >

 

A) There is insufficient information to tell.

B) The value will decrease.

C) The value will increase.

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Everything else being constant, a decrease in free cash flow to equity should decrease the value of the firm.

土豆妮

 

A firm has:

• Free cash flow to equity = $4.0 million.
• Cost of equity = 12%.
• Long-term expected growth rate = 5%.
• Value of equity per share = $57.14 per share. 

What will happen to the value of equity if the cost of equity decreases to 10%?> >

A) The value will increase.

B) There is insufficient information to tell.

C) The value will decrease.

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Everything else being constant, a decrease in the relevant required rate of return should increase the value of the equity per share.

土豆妮

 

A firm has:

• Free cash flow to the firm = $4.0 million.
• Weighted average cost of capital = 10%.
• Total debt = $30.0 million.
• Long-term expected growth rate = 5%.
• Value of the firm = $50.00 per share.

What will happen to the value of the firm if the weighted average cost of capital increases to 12%?> >

A) The value will decrease.

B) The value will remain the same.

C) The value will increase.

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Everything else being constant, an increase in the relevant required rate of return should decrease the value of the firm.