Chapter 3: CASH FLOW VALUATION TECHNIQUES

Question 1

Amount of cash avaliable for distribution to both debt and equity claims of the business or asset.

Answer 1

Net Cash Flows

Question 2

Can be done by determining the present value of the net cash flows of the investment opportunity

Answer 2

Discounted Cash Flow Analysis (DCF)

Question 3

The best case for firms is to fund its investments wholly or partly through cash from operations

Answer 3

Source of financing needed for investments

Question 4

Significant disparities between cash flows and income may indicate earnings does NOT get converted to cash early, suggesting low quality.

Answer 4

Quality of earnings

Question 5

Is an excellent financing strategy especially for expanding companies

Answer 5

Reliance of debt financing

Question 6

Represents the amount of cash flows made available to the equity stockholders after deducting the net debt or outstanding liability to the creditors less available cash balance of the cmpany.

Answer 6

Net cash flows to equity

Question 7

Refers to the cash flow available to the parties who supplied capital after paying all operating expenses, including taxes, and investing in capital expenditures

Answer 7

Net cash flows to the firm

Question 8

Net cash flows to the firm can be computed or derived using:

Answer 8

Net income
Statement of cash flows
EBITDA

Question 9

Is the amount made available to both debt and equity claims againts the company.

Answer 9

Net cash flows to the firm

Question 10

Basic measure of a firm’s profitability which refers to the bottom-line figure in an income statement.

Answer 10

Net income available to common shareholders

Question 11

_____ added back to the net income since the objective of NCF is to measure the cash flows associated with operating activities of the business

Answer 11

After-tax interest expense

Question 12

Pertains to non-cash items that are included in the computation of the net income

Answer 12

Non-cash charges (net)

Question 13

True or false

In quality of earnings, significant disparities between cash flows and income may indicate earnings does get converted to cash easily, suggesting low quality.

Answer 13

False.

Does not get converted cash easily

Question 14

Pertains to cash outflows made to purchase or pay for capital expenditures that are required to support existing and future operating needs

Answer 14

Investment in Fixed Capital

Question 15

Represents how much cash was raised or paid to finance the company

Answer 15

Cash flow from financing activities

Question 16

Represents the net investment in current asset such as receivables and inventory reduced by current liabilities like payable.

Answer 16

Working Capital Adjustments

Question 17

Represents how much cash is disbursed (received) for investments in (sale of) long-term assets

Answer 17

Cash flow from investing activities

Question 18

Not typically adjusted if NCFF startscwith EBITDA

Answer 18

Non-cash charges

Question 19

True or false

If non-chash charges are deducted, then there is a need to add the item back. If not yet deducted from EBITDA, there is no need to add it back to compute for NCFF

Answer 19

True

Question 20

This refers to the amount of cash received by the company as a result of borrowing of long-term debt

Answer 20

Proceeds from borrowings

Question 21

Refers to cash available for common equity participants or shareholders only after paying expenses satisfying operating and fixed capital requirements

Answer 21

Net Cash flows to Equity

Question 22

True or false

Cash flow from financing activities are considered when computing NCFF

Answer 22

False. Not considered.

Question 23

Same with the debt, preferred shares as another form of financing, must also be factored in the calculation of the net cash flows available to equity.

Answer 23

Proceeds from issuance of preferred shares

Question 24

This is the total amount of loan repayment and the interest expenses, net of income tax benefit

Answer 24

Debt service

Question 25

Payments made to preferential shareholders in the form of dividends are outflows.

Answer 25

Dividends on preferred shares

Question 26

Total amount used to service the loans or debt financing

Answer 26

Debt service

Question 27

Is a financial method of valuation and it is widely used to assess any investment value or estimate the valuation of a company or project

Answer 27

DCF model formula

Question 28

States that if the value reached through discounted cash flow analysis is higher than the current cost of the investment, the opportunity would be attractive.

Answer 28

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