60.1K

Verified Solution

Link Copied!

8. Answer the following questions pertaining to the formulas for estimating the FCF of a firm in a particular period: a. There are two formulas for estimating FCFs of a firm (see below). Start with formula 1 and use accounting equations to show that formula 2 will lead to the same answer (i.e., the two equations are identical). Formula 1: FCF = NOPAT + Depreciation - CAPEX - Investment in NOWC Formula 2: FCF = NOPAT - NIOC b. The formulas make several assumptions - see slide 5,6, and 9 of this module (these are the same assumptions made throughout this course). How would calculating future FCF change if the firm i) currently has Pension liabilities and you expect to pay it off by the time the firm matures and ii) currently has Goodwill (due to acquisition activities) but you believe the firm will not engage in any additional significant activities? 8. Answer the following questions pertaining to the formulas for estimating the FCF of a firm in a particular period: a. There are two formulas for estimating FCFs of a firm (see below). Start with formula 1 and use accounting equations to show that formula 2 will lead to the same answer (i.e., the two equations are identical). Formula 1: FCF = NOPAT + Depreciation - CAPEX - Investment in NOWC Formula 2: FCF = NOPAT - NIOC b. The formulas make several assumptions - see slide 5,6, and 9 of this module (these are the same assumptions made throughout this course). How would calculating future FCF change if the firm i) currently has Pension liabilities and you expect to pay it off by the time the firm matures and ii) currently has Goodwill (due to acquisition activities) but you believe the firm will not engage in any additional significant activities

Answer & Explanation Solved by verified expert

See Answer