Title Reading 21 Free Cash Flow Valuation.pdf ✅

Question #1 of 137 Question ID: 1472946 Free cash flow approaches are the best source of value when: A) return on assets is falling. B) dividends are not paid. C) a firm has significant minority interest. Question #2 of 137 Question ID: 1473008 The stable-growth free cash flow to the firm (FCFF) model is most useful in valuing firms that: A) have capital expenditures that are significantly higher than depreciation. B) are growing at a rate significantly lower than that of the overall economy. C) have capital expenditures that are not significantly higher than depreciation. Question #3 of 137 Question ID: 1473009 Which of the following is most useful in analyzing firms that have high leverage and high growth? A) Two-stage free cash flow to the firm (FCFF) model. B) Two-stage free cash flow to equity (FCFE) model. C) Stable-growth free cash flow to the firm (FCFF) model. Question #4 of 137 Question ID: 1472950 What is the most likely reason that you get an extremely low value from the three-stage FCFE model? Capital expenditures are significantly: A) higher than depreciation in the stable-growth phase.
B) less than depreciation during the high-growth phase. C) higher than depreciation during the high-growth phase. Burcar-Eckhardt, a firm specializing in value investments, has been approached by the management of Overhaul Trucking, Inc., to explore the possibility of taking the firm private via a management buyout. Overhaul's stock has stumbled recently, in large part due to a sudden increase in oil prices. Management considers this an opportune time to take the company private. Burcar would be a minority investor in a group of friendly buyers. Jaimie Carson, CFA, is a private equity portfolio manager with Burcar. He has been asked by Thelma Eckhardt, CFA, one of the firm's founding partners, to take a look at Overhaul and come up with a strategy for valuing the firm. After analyzing Overhaul's financial statements as of the most recent fiscal year-end (presented below), he determines that a valuation using Free Cash Flow to Equity (FCFE) is most appropriate. He also notes that there were no sales of PPE. Overhaul Trucking, Inc. Income Statement April 30, 2005 (Millions of dollars) 2005 2006E Sales 300.0 320.0 Gross Profit 200.0 190.0 SG&A 50.0 50.0 Depreciation 70.0 80.0 EBIT 80.0 60.0 Interest Expense 30.0 34.0 Taxes (at 35 percent) 17.5 9.1 Net Income 32.5 16.9 Overhaul Trucking, Inc. Balance Sheet