He company could achieve before it had to increase

he company could achieve before it had to increase its fixed assets?
y. Now the company is developing its financial forecast for the coming year. As part of that process, the compa

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orecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Dollars are in millio
hown below. Based on the AFN equation, what is the AFN for the coming year?
in the forecast are shown below. However, the CEO is concerned about the impact of a change in the payout r

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y. If the company had been able to sell off enough of its fixed assets at book value so that it was operating at fu

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eases.
luding fixed assets, then any positive growth in sales will require some external financing.
additional funds than Firm B, other things held constant.
(non zero) Y-intercept.

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That chain of events results in a higher AFN than was forecasted on the first pass.

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entory turnover ratio for the coming year?
any wants to set its target Fixed Assets/Sales ratio at the level it would have had had it been operating at full ca

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ons.
ratio from the 10% that was used in the past to 50%, which the firm's investment bankers have recommended

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ull capacity, with sales held constant at $450 million, how much cash (in millions) would it have generated?

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apacity. What target FA/Sales ratio should the company set?

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d. Based on the AFN equation, by how much would the AFN for the coming year change if HHW increased the

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payout from 10% to the new and higher level? All dollars are in millions.

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Ch 15
True/False
Indicate whether the statement is true or false.
__F_ 1 The corporate valuation model cannot be used unless a company doesn't pay dividends.
__T_ 2 Free cash flows should be discounted at the firm's weighted average cost of capital to find
__F_ 3 Value-based management focuses on sales growth, profitability, capital requirements, the
__F_ 4 Two important issues in corporate governance are (1) the rules that cover the board's abil
__F_ 5 If a company's expected return on invested capital is less than its cost of equity, then the c
__F_ 6 A poison pill is also known as a corporate restructuring.
__F_ 7 The CEO of D'Amico Motors has been granted some stock options that have provisions sim
__T_ 8 ESOPs were originally designed to help improve worker productivity, but today they are al
Multiple Choice
Identify the choice that best completes the statement or answers the question.
__b_ 9 Which of the following statements is NOT CORRECT?
a. The corporate valuation model can be used both for companies that pay dividends and th
b. The corporate valuation model discounts free cash flows by the required return on equity.
c. The corporate valuation model can be used to find the value of a division.
d. An important step in applying the corporate valuation model is forecasting the firm's pro f
e. Free cash flows are assumed to grow at a constant rate beyond a specified date in order to
__a_ 10 Which of the following does NOT always increase a company's market value?