The Cash Flow Of The Free Cash Flows ( Fcf )

Free Cash Flow = Sales Revenues – Operating Costs and Taxes – Required Investments in Operating Capital. Weighted Average Cost of Capital (WACC) is affected by market interest rates, market risk aversion, cost of debt, cost of equity, firm’s debt/equity mix, and firm’s business risk. Therefore, free cash flows and the weighted average cost of capital interact to determine a firm’s value by the following equation:

E. Cindy and Rob estimate that the market value of the common equity in the venture is $900,000 at the end of 2010. The market values of interest-bearing debt are judged to be the same as the recorded book values at the end of 2010. Estimate the market value-based weighted average cost of capital for Castillo Products.

in our calculations, as this company exhibited dramatic value differences to others in the sample, (likely to skew our results and prove misleading). Using the average of the revised sample field for each ratio, we inserted Torrington’s values where appropriate to generate an entity value. The findings generated two values for Torrington, 606 million and 398 million. Taking the average of these two numbers, Torrington exhibited a relative value of 502.41 million. Because of the lack of related information given in the case, and the often large differences in measures amongst competitors, different capital structures, internal management strategies, there remained many unknowns in our model. We decided it would be best to use this valuation to reaffirm our assumptions in our DCF valuation. (Please see exhibits)

The next step was to calculate the free cash flows for the eleven-year period. In order to do so, we used to following formula: FCF = EBIT(1-tax) + depreciation - change in NWC – CapEx. From here, we used to WACC of 13.89% previously calculated, in order to find the present value of each FCF.

A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value. Without cash, it's tough to develop new products, make acquisitions, pay dividends and reduce debt.

The free cash flow method is used to gauge “a company’s cash flow beyond that necessary to grow at the current rate… [to ensure companies] make capital expenditures to continue to exist and to grow” (Drake, n.d.). Calculation of free cash flows utilizes various components, including a firm’s value, cash flow forecasts, a firm’s capital structure, the cost of capital, and/or discounted cash flows.

In Scenario A, the Debt would remain at 0 for good. This results in a D/V ratio of 0 which gives us a WACC of 9.21. Using the WACC to derive the Enterprise value of the company, it is found to be $3.043B. Subtracting the debt of $1.25B, we have a Value of Equity of $1.79B. Subtracting the $765M that is

(Note: retained earnings information is irrelevant here) Part b. Total market value = debt + pref. equity + Common equity = 1,147,200 + 1,250,000 + 2,500,000 = $4,897,200

To arrive to the correct set of cash flows to use for the most basic valuation method (the WACC), Kennecott should take net income and add back tax adjusted interest expenses, depreciation and goodwill amortization, and subtract increases in net working capital and capital expenditures. Without adjusting the net income to obtain the free cash flows, the value of Carborundum to Kennecott could justified $70-$85 per share. Multiplying the per share price of $85 by the 8 million shares outstanding, Carborundum would be worth $680 million. This figures is identical to the cash flows calculated under Exhibit 7 of the case, discounted at a discount rate of 10%, which comes out to $679 million.

As you can see in the graph below, the terminal value for the company if it takes the equity route is about $106M, where if it takes the debt route its terminal value will be about $45M.

2. Magnetronics had $7,380 invested in accounts receivables at year-end 1999. Its average sales per day were $133,614 during 1999 and its average collection period was 55.23 days. This represented an improvement from the average collection period of 58.68 days in 1995.

We valued the company using four different methods; Net Present Value, Internal Rate of Return, Modified Internal Rate of Return and Profitability Index. We began with the Net Present Value, or NPV, calculation. NPV values an investment’s profitability based on the projected future cash inflows and outflows of the investment, discounted back to present value using the WACC. The calculations for NPV are presented in Appendix 2. We started by separating cash inflows and outflows by each year. We used Bob Prescott’s estimates for the revenue per year and related operating costs of cost of goods sold as

It is determined that the company worth is $856,518 with a share price of $351.03 per value as per the discounting dividend cash flow valuation approach..In appraising the anticipated premerger performance of the company, the weighted average cost of capital is computed; the worth of the WACC for FVC is 9.2% as depicted in

The purpose of the statement of cash flows is to summarize an entity’s cash flows from operating, investing, and financing activities during a period. Because it is concerned with activity for a specific period of time, the statement is similar to the

The project proposal will be critical analysed before it will established in South Korea. In the first assignment will looked in depth in political, country risk, FDI theories and motive for the project. In the second assignment, the cost of capital for the project was calculated, stating the risk for both the parent and subsidiaries.