Question #57

Reading: Reading 21 Free Cash Flow Valuation

PDF File: Reading 21 Free Cash Flow Valuation.pdf

Page: 28

Status: Unattempted

Part of Context Group: Q56-57
Shared Context
- Using only the corporate finance firm's data in Exhibit 2 and their growth assumptions, the value of Fishy Discs Ltd.'s equity is closest to? A) £2,033,000. B) £3,075,000. C) £3,105,000.
Question
How many of the FCFF definitions, in Exhibit 3, that Tony is studying are accurate?
Answer Choices:
A. Both
B. Neither
C. Only FCFF from EBIT
Explanation
FCFF = EBITDA(1 – T) + (D × T) – FCINV – WCINV Note that the formulae given in the question is incorrect as it adds back depreciation rather than the tax shield on depreciation. It should be noted that other NCC might need to be adjusted for in practice.
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