FINANCIAL MANAGEMENT: THEORY AND PRACTIC
16th Edition
ISBN: 9780357691977
Author: Brigham
Publisher: CENGAGE L
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Chapter 7, Problem 4MC
Suppose the
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Suppose the free cash flow at Time 1 is expected to grow at a constant rate of forever. If , what is a formula for the present value of expected free cash flows when discounted at the WACC? If the most recent free cash flow is expected to grow at a constant rate of forever (and ), what is a formula for the present value of expected free cash flows when discounted at the WACC?-I added the photo because I could not input some of the information via keyboard
The present value of a future cash flow is computed by multiplying the future cash flow value with the:
O discounting factor.
O number of periods.
O compounding factor.
O interest rate.
Which of the following is true about present value calculations?
Other things remaining equal, the present value of a future cash flow decreases if the investment time period increases.
Other things remaining equal, the present value of a future cash flow increases if the investment time period increases.
Chapter 7 Solutions
FINANCIAL MANAGEMENT: THEORY AND PRACTIC
Ch. 7 - Two investors are evaluating General Electric’s...Ch. 7 - A bond that pays interest forever and has no...Ch. 7 - Explain how to use the free cash flow valuation...Ch. 7 - Ogier Incorporated currently has $800 million in...Ch. 7 - EMC Corporations current free cash flow is 400,000...Ch. 7 - Prob. 3PCh. 7 - JenBritt Incorporated had a free cash flow (FCF)...Ch. 7 - Blunderbluss Manufacturing’s balance sheets report...Ch. 7 - Thress Industries just paid a dividend of $1.50 a...Ch. 7 - Boehm Incorporated is expected to pay a 1.50 per...
Ch. 7 - Woidtke Manufacturing’s stock currently sells for...Ch. 7 - A company currently pays a dividend of $2 per...Ch. 7 - Nick’s Enchiladas has preferred stock outstanding...Ch. 7 - Brook Corporation’s free cash flow for the current...Ch. 7 - Kendra Enterprises has never paid a dividend. Free...Ch. 7 - Dozier Corporation is a fast-growing supplier of...Ch. 7 - Brushy Mountain Mining Companys coal reserves are...Ch. 7 - Prob. 15PCh. 7 - Crisp Cookware’s common stock is expected to pay a...Ch. 7 - Prob. 17PCh. 7 - Assume that the average firm in C&J Corporation’s...Ch. 7 - Simpkins Corporation does not pay any dividends...Ch. 7 - Several years ago, Rolen Riders issued preferred...Ch. 7 - You buy a share of The Ludwig Corporation stock...Ch. 7 - You are analyzing Jillians Jewelry (JJ) stock for...Ch. 7 - Reizenstein Technologies (RT) has just developed a...Ch. 7 - Conroy Consulting Corporation (CCC) has a current...Ch. 7 - Start with the partial model in the file Ch07 P25...Ch. 7 - Prob. 26SPCh. 7 - Start with the partial model in the file Ch07 P27...Ch. 7 - Describe briefly the legal rights and privileges...Ch. 7 - Prob. 2MCCh. 7 - Use a pie chart to illustrate the sources that...Ch. 7 - Suppose the free cash flow at Time 1 is expected...Ch. 7 - Use BMs data and the free cash flow valuation...Ch. 7 - You have just learned that B&M has undertaken a...Ch. 7 - Prob. 7MCCh. 7 - Prob. 8MCCh. 7 - Prob. 9MCCh. 7 - What is the horizon value at Year 4? What is the...Ch. 7 - Prob. 11MCCh. 7 - Prob. 14MCCh. 7 - Prob. 15MCCh. 7 - Assume that Temp Force is a constant growth...Ch. 7 - Prob. 17MCCh. 7 - Prob. 18MCCh. 7 - Prob. 19MCCh. 7 - Prob. 20MCCh. 7 - Prob. 21MC
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- Which of the following discounts future cash flows to their present value at the expected rate of return, and compares that to the Initial Investment? A. internal rate of return (IRR) method B. net present value (N PV) C. discounted cash flow model D. future value methodarrow_forwardConsider two assets with the following cash flow streams: Asset A generates $4 at t=1, $3 at t=2, and $10 at t=3. Asset B generates $2 at t=1, $X at t=2, and $10 at t=3. Suppose X=6 and the interest rate r is constant. For r=0.1, calculate the present value of the two assets. Determine the set of all interest rates {r} such that asset A is more valuable than asset Draw the present value of the assets as a function of the interest rate. Suppose r=0.2. Find the value X such that the present value of asset B is 12. Suppose the (one-period) interest rates are variable and given as follows: r01=0.1,r12=0.2, r23=0.3. Calculate the yield to maturity of asset A. (You can use Excel or ascientific calculator to find the solution numerically.)arrow_forwardConsider two assets with the following cash flow streams: Asset A generates $4 at t=1, $3 at t=2, and $10 at t=3. Asset B generates $2 at t=1, $X at t=2, and $10 at t=3. Suppose X=6 and the interest rate r is constant. Suppose r=0.2. Find the value X such that the present value of asset B is 12. Suppose the (one-period) interest rates are variable and given as follows: r01=0.1,r12=0.2, r23=0.3. Calculate the yield to maturity of asset A. (You can use Excel or ascientific calculator to find the solution numerically.)arrow_forward
- Which of the following statements correctly describe how the present value of a future expected cash flow may vary with different factors? Group of answer choices A. More than one of the other options are correct. B. As the expected loss of purchasing power due to inflation increases, then, holding all else constant, the present value of a future expected cash flow will decrease. C. As the period of time we have to wait until we receive a future expected cash flow decreases, then, holding all else constant, the present value of the cash flow will decrease. D. As the risk associated with a future expected cash flow increases, then, holding all else constant, the present value of the cash flow will increase.arrow_forwardIf you disounted a set of positive real cash flows with a nominal discount rate and inflation were posotive, you would _______ the present value of those cash flowsarrow_forwardThe cash flows for two alternatives X and Y are shown in the table displayed here. Year: 0 1 2 3 4 5 Alternative X: -$3,000 900 900 900 900 1,300 Alternative Y: -$5,000 1,400 1,400 1,400 1,400 2,100 Write an equation using appropriate compound-interest factors that could be used to solve for the incremental rate of return (ΔIRR) associated with these two alternatives. Do NOT solve this equation for ΔIRR.arrow_forward
- If you are compounding a cash flow, you are ________. A: Finding a future value B: Finding a present value C: Multiplying a future cash flow by the number of years it is from the present D: None of the abovarrow_forwardCertainty Equivalent Cash flow (CEQ) is obtained through converting the expected cash flows by a ______ shift of risk. If we discount the CEQ by the time value of money, we will have the present value _______ discounting future cash flow by time and risk discounting factor. Therefore, CEQ is always ______ than the expected cash flow. Find the correct choice to fill the blanks. A. time varying, same as, lowerB. constant, same as, lower C. time varying, higher than, lowerD. constant, same as, higherarrow_forwardwe can still calculate the IRR on incremental cash flows. True or false? Explain with example?arrow_forward
- Logan is conducting an economic evaluation under inflation using the then-current approach. If the inflation rate is j and the real time value of money rate is d, which of the following is the interest rate he should use for discounting the cash flows? a. j b. d c. j + d d. j + d + dj.arrow_forwardTo calculate a terminal value, one divides the next period's cash flow by the spread between the and discount rate growth rate. a. variable; variable b. constant; variable c. variable; constant d. constant, constantarrow_forwardSelect all the correct statements. The internal rate of return (IRR) generated by a positive cash flow stream of n payments a. is always given by the solution of a quadratic equation b. is always bigger or equal than -1 c. can be -2 for a suitable cashflow d. can be 17 for a suitable cashflow e. is always smaller or equal than +1arrow_forward
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