residual cash flows are estimated when: course hero

What is the residual cash flow?

The Residual Cash Flow Let us now turn to the firm's financing activities, that is, all the cash flows that go to and come from the providers of debt and equity. Debtholders have a contractual claim on regular interest payments as well as the repayment of the notional amount.

Who are the residual claimants in the stock market?

These investors earn returns from receiving dividends and from stock price appreciation. A. bondholders B. stockholders C. investment bankers D. managers B 2. As residual claimants, these investors claim any cash flows to the firm that remain after the firm pays all other claims.

How do you calculate free cash flow in an analysis period?

Write down the net operating profit for the analysis period. Subtract taxes from this figure, then subtract the net investment, the amount of money you put into your investments. Subtract the change in working capital from the beginning of the analysis period to the end of the period from this figure to get the free cash flow.

What is the total cash outflow from debt financing?

Therefore, the total cash outflow from debt financing is1'400. Based on this information, we can now compute the so-called Residual cash flow. This is the amount of money which is available for distribution to the firm's equityholders:

What is residual claimant?

What is the size of a firm measured as the current stock price multiplied by the number of shares outstanding?

About this website

Finance Final (Ch 8) Flashcards | Quizlet

Study with Quizlet and memorize flashcards containing terms like Which of these investors earn returns from receiving dividends and from stock price appreciation?, As residual claimants, which of these investors claim any cash flows to the firm that remain after the firm pays all other claims?, When residual cash flows are high, stock values will be: and more.

Chapter 8 FIN3200 Flashcards | Quizlet

Study with Quizlet and memorize flashcards containing terms like As residual claimants, which of these investors claim any cash flows to the firm that remain after the firm pays all other claims? Creditors Bondholders Preferred stockholders Common stockholders, To list a stock on the NYSE, a company must meet minimum requirements that include all of the following EXCEPT: firm size. total ...

What is residual claimant?

2. As residual claimants, these investors claim any cash flows to the firm that remain after the firm pays all other claims.

What is the size of a firm measured as the current stock price multiplied by the number of shares outstanding?

20. The size of the firm measured as the current stock price multiplied by the number of shares outstanding is referred to as the firm's

What is residual cash flow?

The table shows a residual cash flow of 1'600 for Year 1. This is the amount of cash the firm has generated after all stakeholders except for the shareholders have received their fair compensation. In principle, this money could be paid out to the shareholders without affecting the firm's operating activities, investment policy, or debt financing policy.

What is residual claim in equity?

Equityholders, in contrast, have a so-called residual claim, which means that they are only entitled to compensation after all other stakeholders have received their fair compensation. Because debt claims are senior to equity claims, it makes sense to first consider all cash flows related to debt financing.

Do interest payments reflect cash outflow?

Interest payments: Clearly, interest expenses reflect a cash outflow. Therefore, we have to subtract them from the free cash flow. However, remember from before that the cash implications of interest expenses are two-fold: the actual interest payments to the bank and the tax savings the firm makes because interest expenses lower taxable income. To account for these two cash implications of interest expenses, we deduct the after-tax interest expenses from the free cash flow.

How to calculate residual value?

Calculate the residual value by dividing the free cash flow by the discount rate.

How to calculate discount rate?

Calculate the discount rate. Multiply each investment in your portfolio by its expected yearly return and add the figures together. Divide the total by the total investments you made to get the discount rate. For example, if you have two investments of $10,000 each with an expected return rate of 5 percent and one investment of $5,000 with an expected return rate of 3 percent, do the calculation (500+500+150)/25,000. Your discount rate will therefore be 0.046 or 4.6 percent.

What is residual claimant?

2. As residual claimants, these investors claim any cash flows to the firm that remain after the firm pays all other claims.

What is the size of a firm measured as the current stock price multiplied by the number of shares outstanding?

20. The size of the firm measured as the current stock price multiplied by the number of shares outstanding is referred to as the firm's