Forecasting Firm Value

Question 1

Key Assumption for FCFF

Answer 1

FC Investment in excess of depreciation (incremental FC Inv) and increase in WCInv have a constant relationship with forecasting increase in saels

Question 2

FCFF Mistake: using earnings components such as NI, EBIT, EBITDA or CFO

Answer 2

in a discounted cash flow valuation - may systematically understate or overstate the value of stock

Question 3

EBITDA is a poor proxy for FCFF as…

Answer 3

it does not account for the depreciation tax shield and investment in FC and WC, but an even poorer proxy for free cash flow to equity