--%>
Assignment Help - homework help

Calculate present value of expected cash flow to shareholder

When valuing the shares of my company, I calculate the present value of the expected cash flows to shareholders moreover I add to the result obtained cash holdings and liquid investment. Is that correct?

E

Expert

Verified

The company is incorrect to add those, if it is not going to distribute the cash holdings in the near future. This is also incorrect to add the complete value of the cash holdings since the company requirements part of it to go on with its operations as the minimum cash holdings.

This could be correct to add all the cash holdings only in the following cases as follows:

a) When the interest rate received for the treasury to equal the interest rate paid for debt;

b) When the cash holdings were distributed instantly, and

c) When the cost of debt needed to compute the WACC was the weighted average of the cost of debt and the interest rate received for the treasury in this a case, the helpful debt in order to compute the ratio debt/shareholder’s equity has to be the debt minus the cash holdings.

The value of the excess cash holdings but over the essential amount in order to go on with the operations is lower than the book value when the interests received for the treasury are lower than interests paid for debt.

   Related Questions in Corporate Finance

  • Q : What did better mean specified by

    What did ‘better’ mean specified with Markowitz questioned regarding portfolio selection?

    		•
  • Q : Additive risk in the CAPM Suppose that

    Suppose that the two securities APPL and MSFT account for the entire large cap technology component of the S&P 500 (hypothetically – of course – there are really plenty of others). Further, suppose that their weights in the S&P index were as follow

    		•
  • Q : Explain consensus among the chief

    Is there any consensus among the chief authors in finance concerning the market risk premium?

    		•
  • Q : What is Net Operating Profit after Tax

    What is Net Operating Profit after Tax (NOPAT)?

    		•
  • Q : Explain new methodology of standard

    Explain new methodology of standard market practice.

    		•
  • Q : How could prestigious investment bank

    I have a doubt about the Enron case. How could this prestigious investment bank advice investing while the quotations of the shares were falling?

    		•
  • Q : Public Finance which type of tax,

    which type of tax, direct or indirect is applicable in underdeveloped countries? Why? Show your critical areas and weaknesses.

    		•
  • Q : Explain undervaluation of share on the

    Suppose we calculate g as ROE (1–p)/(1–ROE (1–p)) and the Ke by the CAPM. We replace both values into the formula PER = (ROE (1+g) – g)/ROE (Ke-g) but there PER we obtain is fully different from the one we get by dividing the quotation of the s

    		•
  • Q : PV of Dividends PV of dividends:

    PV of dividends: Cortez, Inc., is expecting to pay out a dividend of $2.50 next year. After that it expects its dividend to grow at 7 percent for the next four years. What is the present value of dividends over the next five-year period if the required rate of return is 10 percent?

    		•
  • Q : Define the term Commercial Paper

    Commercial Paper: It is an unsecured obligation issued by the corporation or bank to finance its short-term credit requirements, like accounts inventory and receivable. Maturities usually range from 2 to 270 days. The commercial paper is accessible in

    		•