fm15 8 - free cash flows discounted at the WACC is the...

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Mini Case: 15 - 8 MINI CASE You have been hired as a consultant to Kulpa Fishing Supplies (KFS), a company that is seeking to increase its value. KFS has asked you to estimate the value of two privately held companies that KFS is considering acquiring. But first, the senior management of KFS would like for you to explain how to value companies that don’t pay any dividends. You have structured your presentation around the following questions. a. List the two types of assets that companies own. Answer: Assets-in-place and nonoperating, or financial, assets. b. What are assets-in-place? How can their value be estimated? Answer: Assets-in-place are tangible, such as buildings, machines, inventory. Usually they are expected to grow. They generate free cash flows. The PV of their expected future
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Unformatted text preview: free cash flows, discounted at the WACC, is the value of operations. c. What are nonoperating assets? How can their value be estimated? Answer: Nonoperating assets are marketable securities and ownership of non-controlling interest in another company. The value of nonoperating assets usually is very close to figure that is reported on balance sheets. d. What is the total value of a corporation? Who has claims on this value? Answer: Total corporate value is sum of value of operations, value of nonoperating assets, and value of growth options. (No examples in this chapter have a growth option-- this is deferred until chapter 18). Debt holders have first claim. Preferred stockholders have the next claim. Any remaining value belongs to stockholders....
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