3. An Analyst is evaluating Quickie Inc. and shared the following projected net cash flows for the next 10 years. Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 1 000 000 1 000 000 1 150 000 1 200 000 1 200 000 1 300 000 Year 7 1 500 000 Year 8 1 700 000 Year 9 2 000 000 Year 10 2 200 000 Quickie Inc. expects to continue to grow infinitely using CAGR of the 10- year forecast period. Required return relevant to the company is at 12%. 1. What is the compounded annual growth rate of 10-yr net cash flow projection? 2. What is the terminal value incorporated in the net cash flow to firm computation? 1. Company Z has the following data: • Sales 2015 is 500M Sales growth rate: 9% in 2016 but will be slow by 1% per year to 4% by 2021. The 4% by 2021 is assumed to be the long run growth in the next years • EBIT is 10% of sales • Increase in NWC is 9% of any increase in sales Net investment is 8% of any increase in sales Tax rate 40% WACC is 12% a. Compute the Free Cash Flow (FCF) b. Compute the Terminal Value (TV) c. Compute the Enterprise Value (EV)
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
VALUATION METHOD
DISCOUNTED CASH FLOW METHOD
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