Ficha 3
Ficha 3
Ficha 3
Master course
(a) It is the cash that equity investors can take out of the firm.
(b) It is the dividend that is paid to stockholders.
(c) It is the cash that equity investors can take out of the firm after financing investment needed to sustain
future growth.
(d) It is the cash left over after meeting debt payments and paying taxes.
(e) None of the above.
(a) The free cash flow to equity will always be higher than the net income of the firm, because depreciation
is added back.
(b) The free cash flow to equity will always be higher than the dividend.
(c) The free cash flow to equity will always be higher than cash flow to the firm, because the latter is a
pre-debt cash flow.
(d) The entire free cash flow to equity cannot be paid out as a dividend because some of it has to be
invested in new projects.
(a) Discounting nominal cash flows at the real discount rate will result in too low an estimate of value.
(b) Discounting real cash flows at the nominal discount rate will result in too low an estimate of value.
(c) If done right, the value estimated should be the same if either real cash flows are discounted at the real
discount rate or nominal cash flows are discounted at the nominal discount rate.
(d) If companies can raise prices at the same rate as inflation, their value should not be affected by changes
in the inflation rate.
(e) Inflation should increase the value of stocks because it increases expected future cash flows.
1
1992 1993
Revenues $544.0 $620.0
(Less) Operating Expenses ($465.1) ($528.5)
(Less) Depreciation ($12.5) ($14.0)
= Earnings before Interest and Taxes $66.4 $77.5
(Less) Interest Expenses ($0.0) ($0.0)
(Less) Taxes ($25.3) ($29.5)
= Net Income $41.1 $48.0
Working Capital $175.0 $240.0
The firm had capital expenditures of $15 million in 1992 and $18 million in 1993. The working capital in
1991 was $180 million.
2
1992 1993
Revenues $8,494.0 $9,000.0
(Less) Operating Expenses ($6,424.0) ($6,970.0)
(Less) Depreciation ($872.0) ($860.0)
= EBIT $1,198.0 $1,170.0
(Less) Interest Expenses ($510.0) ($515.0)
(Less) Taxes ($362.0) ($420.0)
= Net Income $326.0 $235.0
Working Capital ($45.0) ($50.0)
Total Debt $5.4 billion $5.0 billion
The firm had capital expenditures of $950 million in 1992 and $1 billion in 1993. The working capital in
1991 was $190 million, and the total debt outstanding in 1991 was $5.75 billion. There were 305 million
shares outstanding, trading at $21 per share.
(a) Estimate the value per share, using nominal cash flows and the nominal discount rate.
(b) Estimate the value per share, using real cash flows and the real discount rate.