boken kap 5 del 4 Flashcards
Q: What two conditions must be met for a firm to increase its value?
- Earnings must be retained to fund projects.
- The projects must have a positive NPV.
Q: How do positive and negative NPVGOs impact a firm’s value?
A: Investing in positive NPVGOs increases a firm’s value, while investing in negative NPVGOs reduces it.
What is a cashcow?
A company that pays out all earnings per share in dividends, then EPS = Div
What is negative about being a Cash cow?
They miss growth opportunities.
Q: Why are dividends important to discount for equity valuation?
A: Dividends reflect what investors receive from their investment, and reducing dividends can negatively impact investor perception and share price.
Q: Why do no-dividend firms still have a share price?
A: Because they reinvest to generate even larger dividends in the future.
Q: How is the dividend growth model expressed?
A: growing perpetuity formula when we apply it to shares. = (Div_1)/(R-g)
What are the consequences of investing in negative NPVs?
It can still lead to growth in dividends and earnings but it will always reduce value.
What do we need to calculate to value according to the NPVGo model?
- The net present value of a single growth opportunity
- The net present value of all growth opportunities
- The share price if the firm acts like a cash cow.
What defines the Share price?
Cash cow value + growth opportunities
Q: What is one way to value a firm?
A: By calculating the present value of its future cash flows.
Q: How is net cash flow calculated?
A: Net cash flow = Cash inflows - Cash outflows.
Q: What is the formula for the PE ratio?
A: The PE ratio = (Price per share)/EPS = 1/R+NPVGO/EPS
