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2 Jan 2018

For what reasons would a firm use a financial model in projecting future cash flows from an investment, and what are the primary factors to consider when making the cash flow estimates?

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2 Jan 2018
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Related questions

For what reasons would a firm use a financial model in projecting future cash flows from an investment, and what are the primary factors to consider when making the cash flow estimates?

TWO:

Which of the following elements is a part of relevant cash flow?

a.Net income

b.Deprecation

c. Change in working capital

d.Capital Investment

e.All of the above

Residual cash flows are estimated when:

a.The useful lives of alternatives are different

b.One asset has a shorter economic life than its alternatives

c.One asset has a longer economic life than its alternative

d.A and B

e.A, B, and C

The cost of capital can be defined as:

A. the weighted average cost of attracting investors to the firm.

B. the price of obtaining funding for the firm, weighted according to target ratios in the capital structure.

C. less than the weighted average return that investors in the firm require.

D. A and B.

E. A, B, and C.

Gilbert Jones is saving for a new outboard motor. He needs to have $10,000, 4 years from now. How much must he set aside now to have $10,000, 4 years from now if money compounds at 12% annually?

a.$6310

B)6355

c.6332

d.6106

e.None of the above

When projecting financial statements, the balance sheet will

a.Always balance

b.Never balance

c.None of the above

Profit margin and asset turnover are combined to yield

a.EPS

b.Payout

c.ROA

d.ROE

e.None of the above

As the interest rate used to discount future cash flows is decreased, present value of the future cash inflows:

a.increase

b.decreases

c.stays the same

An all equity firm generates cash flows (CFFA) of $100 million every year in perpetuity. Based on the risk of the cash flows, a discount rate of 20% is appropriate for the firm. The firm is considering a project that will require an investment of $75 million in one year. The project will generate cash flows of $10 million in perpetuity. The project is as risky as the firm and investment in the project will be made from cash generated by the firm. Therefore, dividends in one year will be reduced. The first cash flow will be received a year after making the investment. If the firm has 10 million shares outstanding, what is the stock price before the firm makes a decision to invest in the project? What will the stock price be if the firm announces that it has decided to take the project? Is the company making the right decision?

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