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Valuation Models and Forecasts Analysis

1. Chamber Group is analyzing the potential takeover of Outmenu, Inc. and has gathered financial data on Outmenu for 2017. 2. An analyst forecasted free cash flow to equity and free cash flow to the firm for Trammel Medical Supplies from 2018 to 2027 but then Trammel unexpectedly issued new long-term debt in early 2018, which will likely be used to repurchase stock. 3. As a result of the unexpected debt issuance, the analyst should increase their forecast for free cash flow to the firm in 2018 but not change the forecasts for 2019-2027.

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302 views2 pages

Valuation Models and Forecasts Analysis

1. Chamber Group is analyzing the potential takeover of Outmenu, Inc. and has gathered financial data on Outmenu for 2017. 2. An analyst forecasted free cash flow to equity and free cash flow to the firm for Trammel Medical Supplies from 2018 to 2027 but then Trammel unexpectedly issued new long-term debt in early 2018, which will likely be used to repurchase stock. 3. As a result of the unexpected debt issuance, the analyst should increase their forecast for free cash flow to the firm in 2018 but not change the forecasts for 2019-2027.

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bando007
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1. Chamber Group is analyzing the potential takeover of Outmenu, Inc.

Chamber has
gathered the following data on Outmenu. All figures are in millions of dollars.

The most appropriate model for valuing Outmenu is the:

A. free cash flow to equity model.


B. dividend discount H-model.
C. free cash flow to the firm model.

At the end of 2017, Meyer Henderson, CFA, also prepared a 10-year forecast of free cash flow
to equity (FCFE) and free cash flow to the firm (FCFF) from 2018 to 2027 for Trammel Medical
Supplies. In early 2018, Trammel unexpectedly announced a new 15-year issue of senior debt.
The proceeds are expected to be used to repurchase common stock in the open market during
2018.
2. As a result of the unexpected debt issue, Henderson should most likely:
A. increase his FCFE forecast for 2018 and decrease his FCFE forecast for
2019 through 2027.
B. decrease his FCFE forecast for 2018 and increase his FCFE forecast for
2019 through 2027.
C. increase his FCFE forecast for 2018 and not change his FCFE
forecast for 2019 through 2027.
3. As a result of the unexpected debt issue, Henderson should most likely:
A. increase his FCFF forecast for 2018 and decrease his FCFF forecast for
2019 through 2027.
B. decrease his FCFF forecast for 2018 and increase his FCFF forecast for
2019 through 2027.
C. not change his FCFF forecast for 2018 and also not change his FCFF
forecast for 2019 through 2027.
4. An analyst calculates firm value using a single-stage model on December 31, 2017
as:

Assuming there are no nonoperating assets on the balance sheet, the analyst
has most likely:
A. correctly calculated firm value.
B. incorrectly calculated firm value. The weighted average cost of
capital should be substituted for the required return on equity.
C. incorrectly calculated firm value. The weighted average cost of
capital should be substituted for the required return on equity, and
FCFE2017(1 + g) should be substituted for FCFE2018.
[Note: The company’s financial year ends @ 31st. March every year]

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