02 Week Flashcards
What is FCFF?
Free cash flow to the firm is the amount of money that can be distributed to all suppliers of capital
What is FCFE?
Free cash flow to equity is the amount of money that can be distributed to equity-holders
What is the Firm Value (Entity Value)
Indicates the value of all operating and non-operating assets
What is the Enterprise Value?
Enterprise Value reflects the value of operating assets only
What is net debt?
Net debt is debt reduced by the market value of non-operating assets
What is used to calculate the terminal value?
The Gordon-Growth Formula
In which components is risk split up by the CAPM
- market risk
2. firm-specific risk
What is the market risk
the part of a security’s stand-alone risk that can not be eliminated by diversification
What is the firm-specific risk?
the part of a security’s stand-alone risk that can be eliminated by diversification
From the CAPM pricing formula, it follows that …
securities are not priced with respect to their stand-alone risk but their market risk only!
Name three reasons for estimation errors for betas
- sampling frequency
- time period
- time of estimation
- market model
What is the difference between the DCF Enterprise Value and the APV Enterprise value
- FCFF are discounted with the unlevered cost of capital r_U
- PVTS gives the present value of tay shield
Define Multiple
a multiple is a financial figure that relates the value of an asset to a performance measure
What is the difference between trading multiples and transaction multiples
Trading Multiples:
derived from share prices of companies (Peer Group)(are the other companies valued correctly?)
Transaction Multiples:
derived from observed acquisition prices of recent comperable transaction (contain strategic premia)
