5 - its disposal to give out to the capital providers after...

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ents share e 1. DISCOUNTED CASH FLOW AS A VALUATION TECHNIQUE Another different approach to valuation is using the Discounted Cash Flow process. Question: With the above table, can we use the Discounted Cash Flow technique successfully? Take a look at the Price per share and Free cash flow line items, are there any correlations?
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Answer: Discounted Cash Flow technique is a technique which is based on time value of money. It requires discounting the free cash flow of the firm at an appropriate discount rate and arrive at the present value of all the cash flow. Free cash flow can be either free cash flow for the firm as a whole or for the equity. Free Cash Flow is the cash flow that the firm has
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Unformatted text preview: its disposal to give out to the capital providers after meeting all its expenditure and capital needs. In the above case we can see that the firm has negative cash flows for most of the years, these cash flow can be discounted. The present value of these cash flows will be negative. We can see that the share price increases as the negative free cash flow increases. The negative cash flow of the firm is due to capital investment. This may be due to an expectation that the firm will earn higher cash flow in the future and the firm might generate higher profit in the future based on this additional capital investment....
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This note was uploaded on 09/08/2011 for the course ACCOUNTING 101 taught by Professor Bayne during the Winter '10 term at University of California, Berkeley.

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5 - its disposal to give out to the capital providers after...

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