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CHAPTER 15: Firm Valuation: Cost of Capi... > QUESTIONS AND SHORT PROBLEMS

QUESTIONS AND SHORT PROBLEMS

In the problems following, use an equity risk premium of 5.5 percent if none is specified.

  1. Respond true or false to the following statements about the free cash flow to the firm:
    1. The free cash flow to the firm is always higher than the free cash flow to equity.

      True____ False____

    2. The free cash flow to the firm is the cumulated cash flow to all investors in the firm, though the form of their claims may be different.

      True_____ False____

    3. The free cash flow to the firm is a predebt, pretax cash flow.

      True_____ False_____

    4. The free cash flow to the firm is an after-debt, after-tax cash flow.

      True_____ False______

    5. The free cash flow to the firm cannot be estimated for a firm with debt without knowing interest and principal payments.

      True_____ False_____


  

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