Unformatted text preview: term, valuing troubled firms, which are likely to have negative cash flows in the foreseeable future, is likely to be difficult. E. Restructuring alters the asset and liability mix of the firm, making it difficult to use historical data on earnings growth and cash flows on the firm. F. Unutilized assets do not produce cash flows and hence do not show up in discounted cash flow valuation, unless they are considered separately. Problem 3 a. Value of Equity = $ 3,224 (Discount cashflows to equity at the cost of equity – 12%) b. Value of Firm = $ 5,149 (Discount cashflows to the firm at the cost of capital of 9.94%) Problem 4 A. Average P/E Ratio = 31.98 B. No. Eliminate the outliers, because they are likely to skew the average. The average P/E ratio without GET and King World is 25.16. C. You are assuming that (1) Paramount is similar to the average firm in the industry in terms of growth and risk. (2) The marker is valuing communications firms correctly, on average....
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This note was uploaded on 06/09/2011 for the course FINS 3641 taught by Professor Xx during the Three '11 term at University of Sydney.
- Three '11