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Part 3 - MPRs FCF(Contd How did MPR use its FCF We can...

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MPR’s FCF (Cont’d) How did MPR use its FCF? We can summarize the uses of FCF (the signs of the cash flows reflect the perspective of the investors), FCF = After tax interest payments + Old debt paid off - New debt issued + Dividends paid + Stock repurchases - New Stock issues + Purchases of non-operating assets - Sales of non-operating assets Why non-operating assets only? To calculate FCF, one can Use the operating approach (as we did earlier), Use the financing approach (as above). The operating approach is preferred in practice, It can tell you how changes in corporate strategy will affect the value of a company, It forces you to be explicit about your assumptions when forecasting FCF, The operating approach is the only approach that is feasible when calculating the FCF of a division. Valuation of MPR Now that we have the current FCF, the next step is to forecast MPR’s future FCF.
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