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APPROACHESTOVALUATI ON Ana l y s t sus eawi der a n g eofmode l si npr a c t i c e ,r a n gi n gf r omt hes i mp l et ot he s ophi s t i c a t e d.The s emode l sof t e nma k ev e r ydi ffe r e nta s s umpt i onsa boutpr i c i ng , butt he ydos ha r es omec ommonc ha r a c t e r i s t i c sa ndc a nbec l a s s i fie di nbr oa de r t e r ms .The r ea r es e v e r a la d v a nt a g e st os uc hac l a s s i fic a t i on-i ti se a s i e rt o unde r s t a ndwhe r ei ndi vi dua lmode l sfiti nt ot hebi gpi c t ur e ,wh yt he ypr o vi de di ffe r e ntr e s ul t s ,a ndwhe nt he yha v ef unda me nt a le r r or si nl og i c . Que s t i on1-DCFVal uat i onFundame nt al s Di s c ount e dc a s hflo wv a l ua t i oni sba s e dupont henot i ont ha tt hev a l ueofa na s s e t i st hepr e s e ntv a l ueoft hee xpe c t e dc a s hflo wsont ha ta s s e t ,di s c ount e da tar a t e t ha tr e fle c t st her i s ki ne s soft hos ec a s hflo ws .Spe c i f ywhe t he rt hef ol l o wi n g s t a t e me nt sa boutdi s c ount e dc a s hflo wv a l ua t i ona r et r ueorf a l s e ,a s s umi n gt ha ta l l v a r i a bl e sa r ec ons t a nte x c e ptf ort hev a r i a bl edi s c us s e dbe l o w: A.Ast hedi s c ountr a t ei nc r e a s e s ,t hev a l ueofa na s s e ti nc r e a s e s . B.Ast hee xpe c t e dgr o wt hr a t ei nc a s hflo wsi nc r e a s e s ,t hev a l ueofa na s s e t i nc r e a s e s . C.Ast hel i f eofa na s s e ti sl e n gt he ne d,t hev a l ueoft ha ta s s e ti nc r e a s e s . D.Ast heunc e r t a i nt ya boutt hee xpe c t e dc a s hflo wsi nc r e a s e s ,t hev a l ueofa na s s e t i nc r e a s e s . E.Ana s s e twi t ha ni nfini t el i f e( i . e . ,i ti se xpe c t e dt ol a s tf or e v e r )wi l lha v ea n i nfini t ev a l ue . Que s t i on2-Appr oac he st oDCFVal uat i on The r ea r et woa ppr oa c he st ov a l ua t i on.Thefir s ta ppr oa c hi st ov a l uet hee qu i t yi n t hefir m.Thes e c onda ppr oa c hi st ov a l uet hee nt i r efir m.Wha ti st hedi s t i nc t i on? Wh ydoe si tma t t e r ?

Que s t i on3-Mi s ma t c hi ngCas hflo wsandDi s c ountRat e s Thef ol l o wi n ga r et hepr o j e c t e dc a s hflo wst oe qui t ya ndt ot hefir mo v e rt hene xt fiv ey e a r s : Year 1 2 3 4 5 Terminal Value

CF to Equity $250.00 $262.50 $275.63 $289.41 $303.88 $3,946.50

Int (1-t) $90.00 $94.50 $99.23 $104.19 $109.40

CF to Firm $340.00 $357.00 $374.85 $393.59 $413.27 $6,000.00

( Thet e r mi na lv a l uei st hev a l ueoft hee q ui t yorfir ma tt hee ndofy e a r5. ) Thefir mha sac os tofe qu i t yof12% a ndac os tofc a pi t a lof9. 94%.Ans we rt he f ol l o wi n gqu e s t i ons : A.Wha ti st hev a l ueoft hee qui t yi nt hi sfir m? B.Wha ti st hev a l ueoft hefir m?

Que s t i on4-Pr obl e msi nDCFVal uat i on Wh ymi gh tdi s c ount e dc a s hflo wv a l ua t i onbedi ffic ul tt odof ort hef ol l o wi n gt ype s offir ms ? A.Apr i v a t efir m,whe r et heo wne ri spl a nni ngt os e l lt hefir m. B. Abi ot e c hnol ogyfir m,wi t hnoc ur r e ntpr oduc t sors a l e s ,butwi t hs e v e r a l pr omi s i n gpr oduc tpa t e nt si nt hepi pe l i ne . C.Ac y c l i c a lfir m, dur i n gar e c e s s i on. D.At r oubl e dfir m,whi c hha sma des i gni fic a ntl os s e sa ndi snote xpe c t e dt og e tout oft r oubl ef oraf e wy e a r s . E.Afir m, whi c hi si nt hepr oc e s sofr e s t r uc t ur i n g, whe r ei ti ss e l l i n gs omeofi t s a s s e t sa ndc ha n gi n gi t sfina nc i a lmi x . F. Afir m, whi c ho wnsal otofv a l ua bl el a ndt ha ti sc ur r e nt l yunut i l i z e d. Que s t i on5-Re l at i v eVal uat i on:Fundame nt al s Ana na l y s tt e l l sy out ha theus e spr i c e / e a r ni ng smul t i pl e s ,r a t he rt ha ndi s c ount e d c a s hflo wv a l ua t i on, t ov a l ues t oc ks ,be c a us ehedoe snotl i kema ki n ga s s umpt i ons a boutf unda me nt a l s-gr o wt h,r i s k,a ndpa y outr a t i os .I shi sr e a s oni n gc or r e c t ?

Que s t i on6-I ndus t r yAv e r ag eP/ ERat i os Youa r ee s t i ma t i ngt hepr i c e / e a r n i n g smul t i pl et ous et ov a l uePa r a mount Cor por a t i on, b yl ooki n ga tt hea v e r a g epr i c e / e a r ni n gsmul t i pl eofc ompa r a bl efir ms . Thef ol l o wi n ga r et hepr i c e / e a r n i n g sr a t i osoffir msi nt hee nt e r t a i nme ntbus i ne s s . Firm Disney (Walt) Time Warner King World Productions New Line Cinema CCL PLG CIR GET GTK

P/E Ratio 22.09 36.00 14.10 26.70 19.12 23.33 22.91 97.60 26.00

A. Wha ti st hea v e r a g eP/ Er a t i o? B. Woul dy ouus ea l lt hec ompa r a bl efir msi nc a l c ul a t i n gt hea v e r a g e ?Wh yorwh y not ? C.Wha ta s s umpt i onsa r ey ouma ki n gwhe ny ouus et hei ndus t r y a v e r a g eP/ Er a t i o t ov a l uePa r a moun tCommuni c a t i ons ?

ESTI MATI ONOFDI SCOUNTRATES Thedi s c ountr a t ei sac r i t i c a li n gr e di e nti ndi s c ount e dc a s hflo wv a l ua t i on. Er r or s i ne s t i ma t i n gt hedi s c ountr a t eormi s ma t c hi n gc a s hflo wsa nddi s c ountr a t e sc a n l e a dt os e r i ouse r r or si nv a l ua t i on. Ata ni nt ui t i v el e v e l ,t hedi s c ountr a t eus e d s houl dbec ons i s t e ntwi t hbot ht her i s ki ne s sa ndt het ypeofc a s hflo wbe i n g di s c ount e d.Thou ght he r ei snoc ons e ns usa mon gpr a c t i t i one r sont her i ghtmode l t ous ef orme a s ur i ngr i s k,t he r ei sa gr e e me ntt ha thi ghe r r i s kc a s hflo wss houl dbe di s c ount e da tahi ghe rr a t e . Thi sc ha pt e re xa mi ne st hepr oc e s sofe s t i ma t i ngdi s c ountr a t e s-t hec os tofe q ui t y t obeus e di ndi s c ount i ngc a s hflo wst oe qui t y , a ndt hec os tofc a pi t a lt obeus e di n di s c ount i n gc a s hflo wst ot hefir m. Que s t i on1-CAPM:Hi s t or i c alRi s kPr e mi ums Thef ol l o wi n gt a bl es umma r i z e sr i s kpr e mi umsf ors t oc ksi nt heUni t e dSt a t e s , r e l a t i v et ot r e a s ur ybi l l sa ndbonds ,f ordi ffe r e ntt i mepe r i ods : Ri s kPr e mi umf orEqui t y

Stocks - T.Bills

1926-1990 1962-1990 1981-1990

Arithmetic 8.41% 4.10% 6.05%

Stocks - T.Bonds Geometric 6.41% 2.95% 5.38%

Arithmetic 7.24% 3.92% 0.13%

Geometric 5.50% 3.25% 0.19%

A. Wha tdoe st hi spr e mi umme a s ur e ? B. Wh yi st heg e ome t r i cme a nl o we rt ha nt hea r i t hme t i cme a nf orbo t hbondsa nd bi l l s ? C.I fy ouha dt ous ear i s kpr e mi um,woul dy ouus et hemos tr e c e ntda t a( 19811990) , orwoul dy ouus et hel on g e rpe r i ods ?Expl a i ny ourr e a s oni n g . Que s t i on2-CAPM:Pr e mi umsi nEme r gi ngMar ke t s Youa r ea ni n v e s t orwhoi si nt e r e s t e di nt hee me r gi ngma r k e t sofAs i a .Youa r e t r yi n gt ov a l ues omes t oc ksi nMa l a y s i a ,whi c hdoe snotha v eal on ghi s t or yof fina nc i a lma r k e t s .Dur i n gt hel a s tt woy e a r s ,t hes t oc kma r ke tha sg oneup60% a y e a r ,whi l et heg o v e r nme ntbor r o wi n gr a t eha sbe e n15%,yi e l di nga nhi s t or i c a l

pr e mi umof45%.Woul dy ouus et hi sa sy ourr i s kpr e mi um,l ooki ngi nt ot he f ut ur e ?I fnot ,wha twoul dy ouba s ey oure s t i ma t eoft hepr e mi umon? Que s t i on3-Us i ngt heCAPM Thebe t af orEa s t ma nKoda ki s1. 10. Thec ur r e nts i x mont ht r e a s ur ybi l lr a t ei s 3. 25%, whi l et het hi r t yy e a rbondr a t ei s6. 25%.Es t i ma t et hec os tofe q ui t yf or Ea s t ma nKo da k,ba s e dupon ( a )us i n gt het r e a s ur ybi l lr a t ea sy ourr i s k f r e er a t e . ( b)us i n gt het r e a s ur ybondr a t ea sy ourr i s k f r e er a t e . ( Us et hepr e mi umsi nt het a bl ei nque s t i on1,i fne c e s s a r y . ) Whi c honeoft he s ee s t i ma t e swoul dy ouus ei nv a l ua t i on?Wh y ? Que s t i on4-Es t i mat i ngCAPM par ame t e r s Youa r et r yi n gt oe s t i ma t et hec os tofe q ui t yt ous ei nv a l ui n gDa i ml e rBe nz ,a nda da t as e r v i c er e por t sabe t ae s t i ma t eof0. 90.Ho we v e r ,t hebe t ai se s t i ma t e dr e l a t i v e t ot heFr a nkf ur tSt oc kEx c ha n g e( DAX) .I fy ouwe r ea ni nt e r na t i ona lpor t f ol i o ma na g e rwi t hhol di n gsa c r os sma n yma r ke t s ,woul dy ouus et hi sbe t ae s t i ma t e ? Ho wwoul dy oue s t i ma t ebe t at ome e ty ourne e ds ? Que s t i on5-CAPM:Di vi s i onalandCor por a t eBe t as Youha v ebe e na s k e dt oe s t i ma t et hebe t aofahi ght e c hnol o gyfir mwhi c hha st hr e e di vi s i onswi t ht hef ol l o wi n gc ha r a c t e r i s t i c s Division Personal Computers Software Computer Mainframes

Beta 1.60 2.00 1.20

Market Value $100 million $150 million $250 million

A. Wha ti st hebe t aoft hee qui t yoft hefir m? B. Wha twoul dha ppe nt ot hebe t aofe q ui t yi ft hefir mdi v e s t e di t s e l fofi t ss of t wa r e bus i ne s s ? C.I fy ouwe r ea s k e dt ov a l uet hes of t wa r ebus i ne s sf ort hedi v e s t i t ur e , whi c hbe t a woul dy ouus ei ny ourv a l ua t i on?

Que s t i on6-CAPM:Be t asandFi nanc i alLe v e r ag e Thef ol l o wi n ga r et hebe t a soft hee qui t yoff ourf or e s t r y/ pa pe rpr oduc tc ompa ni e s , a ndt he i rde bt / e q ui t yr a t i os . Company Beta Weyerhauser 1.15 Champion International 1.18

Debt/Equity Ratio 33.91% 54.14%

Intenational Paper

1.05

45.50%

Kimberly-Clark

0.91

11.29%

( Al lt hefir msf a c eac or po r a t et a xr a t eof40%) A. Es t i ma t et heunl e v e r e dbe t aofe a c hfir m.Wha tdot heunl e v e r e dbe t a st e l ly ou a boutt he s efir ms ? B. As s umeno wt ha tKi mbe r l yCl a r ki spl a nni n gt oi nc r e a s ei t sde bt / e qui t yr a t i ot o 30%.Wha twi l li t sne wbe t abe ? C.I fy ouwe r ev a l ui n ga ni ni t i a lpubl i coffe r i ngi nt hepa pe rpr oduc t sa r e a ,wha t be t awoul dy ouus ei nt hev a l ua t i on?( As s umet ha tt hefir mg oi n gpubl i cpl a nst o ha v eade bt / e q ui t yr a t i oof40%. )

Que s t i on7-Be t asandOpe r at i ngLe v e r ag e Thef ol l o wi n gi sade s c r i pt i onoft hec os ts t r uc t ur ea ndbe t a soffiv efir msi nt he f oodpr oduc t i oni ndus t r y : Company CPC International Ralston Purina Quaker Oats Chiquita Kellogg's

Fixed Costs 62% 47% 45% 50% 40%

Variable Costs 38% 53% 55% 50% 60%

Beta

D/(D+E)

1.23 0.81 0.75 0.88 0.76

18.83% 38.32% 13.28% 75.35% 5.57%

( As s umet ha ta l lfir msha v eat a xr a t eof40%. ) A. Ba s e duponj us tt heope r a t i ngl e v e r a ge ,whi c hfir mswoul dy oue xpe c tt oha v e t hehi ghe s ta ndl o we s tbe t a s( a s s umi n gt ha tt he ya r ei nt hes a mebus i ne s s ) ? B. Chi qui t a ' sbe t ai sbe l i e v e dt obemi s l e a di n gbe c a us ei t sfina nc i a ll e v e r a g eha s i nc r e a s e ddr a ma t i c a l l ys i nc et hepe r i odwhe nt hebe t awa se s t i ma t e d. I ft hea v e r a g e D/ ( D+E)r a t i odur i ngt hepe r i odoft her e gr e s s i on( t oe s t i ma t et hebe t a s )wa sonl y 30%,wha two ul dy ourne we s t i ma t eofChi q ui t a ' sbe t abe ?

Que s t i on8-CAPM:Be t asandPr i va t eFi r ms Youa r ea t t e mpt i n gt oe s t i ma t et hebe t aofapr i v a t efir mt ha tha snoc ompa r a bl e fir ms .Youde c i det oe s t i ma t ea n" a c c ount i n g"be t aus i ngpa s te a r ni n gs . Youha v e s i xy e a r sofa c c ount i n gda t aont hepr i v a t efir m,a ndt hec ompa r a bl ei nf or ma t i onon e a r ni ng sc ha n g e sf ort hea v e r a g eS&P500c ompa n ydur i n gt hes a mepe r i od.

Year

Net Income of Private Company

Earnings Change-Average Firm in S&P

1988

$10.00 million

+ 7%

1989 1990 1991 1992

$15.00 million $18.00 million $18.50 million $19.00 million

+10% + 5% - 10% - 8%

1993

$22.00 million

+ 6%

A. Es t i ma t et hea c c ount i n gbe t af ort hepr i v a t ec ompa n y . B. Wha ta r et hel i mi t a t i onsofa n" a c c ount i n g"be t a ?

Que s t i on9-CAPM:Be t asandMe r g e r s Thef ol l o wi n ga r et hebe t a soft hr e ec ompa ni e si n v ol v e di name r g e rba t t l e .The t a r g e tfir mi sPa r a mountCommuni c a t i ons ,a ndt hec ompe t i n gbi dde r sa r eQVCa nd Vi a c om: Company Beta Paramount 1.05 QVC 1.70 Viacom 1.15

Market Value of Equity $6,500 million $2,000 million $7,500 million

Debt $817 million $100 million $2,500 million

( As s umet ha ta l lfir msha v eat a xr a t eof35%. ) A. I fQVCa c qui r e sPa r a mount ,us i n gami xofde bta nde qui t yc ompa r a bl et oi t s c ur r e ntde bt / e q ui t yr a t i o,wha twoul dt hebe t aoft hec ombi ne dfir mbe ? B. I fQVCa c qu i r e sPa r a mount , us i n gonl yde bt , wha twoul dt hebe t aoft he c ompa r a bl efir mbe ? C.I fVi a c oma c qui r e sPa r a mou nt ,us i n gami xofde bta nde qui t yc ompa r a bl et oi t s c ur r e ntde bt / e q ui t yr a t i o,wha twoul dt hebe t aoft hec ombi ne dfir mbe ? D.I fVi a c oma c qui r e sPa r a mount ,us i n gonl ye qui t y , wha twoul dt hebe t aoft he c ompa r a bl efir mbe ?

Que s t i on10-Ar bi t r ag ePr i c i ngMode l Cons i de rt hef ol l o wi n gde r i v a t i onoft hea r bi t r a g epr i c i n gmode l ,whe r et he e xpe c t e dr e t ur nonas t oc ki swr i t t e na st hef unc t i onoff ourv a r i a bl e s : E( Rj )=0. 062-1. 8551+1. 44502-0. 1243-2. 7444As s umet ha ty ouha v e e s t i ma t e dt hebe t a sr e l a t i v et oe a c hoft hef ourf a c t or sf orPa r a mountt obe : 1=0. 072=0. 013=0. 024=0. 01 A. Wha tdoe st hei nt e r c e ptoft hi sr e gr e s s i onme a s ur e ? B. Wha te c onomi ca nds t a t i s t i c a ls i gni fic a nc edot hef ourf a c t or sha v e ? C.Wha tdot hef a c t orc oe ffic i e nt sa ndbe t a sme a s ur e ? D.Wha ti st hee xpe c t e dr e t ur nonPa r a mou nt ,us i n gt hea r bi t r a g epr i c i ngmode l ? E.Thebe t af orPa r a mounti s1. 05.As s umi n gar i s k f r e er a t eof6. 25%,wha twoul d y oure s t i ma t eofe xpe c t e dr e t ur nbeunde rt heCAPM?Wh yi si tdi ffe r e ntf r omy our a ns we ri npa r t( D) ?

Que s t i on11-Di vi de ndGr o wt hMo de l Th ef ol l o wi n gi sal i s to fc o mp a n i e s , wi t hp r i c e s , di v i d e n d spe rs h a r ea n de xp e c t e dgr o wt hr a t e si nd i v i d e n d s ( f r o ma n a l y s tpr o j e c t i o n s )f o re a c hc omp a n y : Company Merck Ogden Co. Honda (ADR) Microsoft

Market Price $32.00 $25.00 $25.00 $84.00

Current DPS $1.06 $1.25 $0.27 $0.00

Growth Rate in DPS 15.0% 4.0% 10.0% NMF

Beta 1.10 1.30 0.75 1.30

( Mi c r os of tha sa ne xpe c t e dgr o wt hr a t ei ne a r ni ng sof24% f ort hene xtfiv ey e a r s . ) A. Es t i ma t et hec os tofe qu i t yus i n gt hedi vi de ndgr o wt hmode l .Whi c h,i fa n y , of t he s efir msma yber e a s ona bl ec a ndi da t e sf orus i n gt hi smode l ?Wh y ? B. Es t i ma t et hec os tofe qu i t yus i n gt heCAPM.( Thet hi r t yy e a rbondr a t ei s 6. 25%. ) C.Whi c he s t i ma t ewi l ly ouus ei nv a l ua t i ona ndwh y ?

Que s t i on12-WACCCal c ul at i on Me r c k&Compa n yha s1. 13bi l l i ons ha r e st r a de da tama r k e tv a l ueof$32pe r s ha r e ,a nd$1. 918bi l l i oni nbookv a l ueofout s t a ndi n gde bt( wi t ha ne s t i ma t e d ma r k e tv a l ueof$2bi l l i on) .Thee q ui t yha sabookv a l ueof$5. 5bi l l i on,a ndt he s t oc kha sabe t aof1. 10.Thefir mpa i di nt e r e s te xpe ns e sof$160mi l l i oni nt he mos tr e c e ntfina nc i a ly e a r , i sr a t e dAAAa ndpa i d35% ofi t si nc omea st a x e s .The t hi r t y y e a rg o v e r nme ntbondr a t ei s6. 25%,a ndAAAbondst r a dea tas pr e a dof t we nt yba s i spoi nt s( 0. 2%)o v e rt het r e a s ur ybondr a t e .PR=5. 50% A. Wha ta r et hema r k e tv a l uea ndbookv a l uewe i ght sonde bta nde q ui t y ? B. Wha ti st hec os tofe qui t y ? C.Wha ti st hea f t e r t a xc os tofde bt ? D.Wha ti st hec os tofc a pi t a l ?

Que s t i on13-WACC:Anot he re x e r c i s e Ge ne r a lMot or sha s710mi l l i ons ha r e st r a di n ga t$55pe rs ha r ea nd$69bi l l i oni n de btout s t a ndi n g( wi t hama r k e tv a l ueof$65bi l l i on) ,onwhi c hi ti nc ur r e da n i nt e r e s te xpe ns eof$5bi l l i oni nt hemos tr e c e nty e a r .I ta l s oha s$4bi l l i oni n pr e f e r r e ds t oc kout s t a ndi n g, t r a di n ga tpa r ,onwhi c hi tpa i dadi vi de ndof$365 mi l l i on.Thes t oc kha sabe t aof1. 10a ndi sr a t e dA( whi c hc omma ndsas pr e a dof 1. 25% o v e rt het r e a s ur ybondr a t eof6. 25%) .Thec ompa n yf a c e dac or por a t et a x r a t eof40%. A. Wha ti st hec os tofe qui t yf orGM? B. Wha ti st hea f t e r t a xc os tofde btf orGM? C.Wha ti st hec os tofpr e f e r r e ds t oc k ? D.Wha ti st hec os tofc a pi t a l ?

ESTI MATI ONOFCASHFLOWS Muc hoft het e di umi nv a l ua t i oni sa s s oc i a t e dwi t he s t i ma t i n gc a s hflo ws ,a ne c e s s a r ye l e me ntofdi s c ount e dc a s hflo wv a l ua t i on. Thi sc ha pt e re xa mi ne st he pr oc e s sofe s t i ma t i n gc a s hflo wsa nde s t a bl i s he ss omeg e ne r a lpr i nc i pl e swhi c h s houl dbea dhe r e dt oi na l lv a l ua t i onmode l s . Theoneo v e r r i di n gpr i nc i pl e g o v e r ni n gc a s hflo we s t i ma t i oni st hene e dt oma t c hc a s hflo wst odi s c ountr a t e s : e q ui t yc a s hflo wst oc os tofe qu i t y;fir mc a s hflo wst oc os tofc a pi t a l ;pr e t a xc a s h flo wst opr e t a xr a t e s ;pos t t a xc a s hflo wst opos t t a xr a t e s ;nomi na lc a s hflo wst o nomi na lr a t e s ;a ndr e a lc a s hflo wst or e a lr a t e s .Thepr oc e s sofe s t i ma t i ngt he s e c a s hflo wsi se xpl a i ne di nde t a i li nt hepa g e st ha tf ol l o w. Que s t i on1-Cas hFl o wst oEqui t y:Conc e pt s Whi c hoft hef ol l o wi ngi st hebe s tde s c r i pt i onoft hef r e ec a s hflo wt oe qui t y ? A. I ti st hec a s ht ha te qui t yi n v e s t or sc a nt a k eoutoft hefir m. B. I ti st hedi vi de ndt ha ti spa i dt os t oc khol de r s . C.I ti st hec a s ht ha te qui t yi n v e s t or sc a nt a k eoutoft hefir ma f t e rfina nc i n g i n v e s t me ntne e de dt os us t a i nf ut ur egr o wt h. D.I ti st hec a s hl e f to v e ra f t e rme e t i ngde btpa yme nt sa ndpa yi n gt a x e s . E.Noneoft hea bo v e . Que s t i on2-Cas hFl o ws :Conc e pt s Ans we rt r ueorf a l s et ot hef ol l o wi n gs t a t e me nt s . A. Thef r e ec a s hflo wt oe qui t ywi l la l wa y sbehi ghe rt ha nt hene ti nc omeoft he fir m,be c a us ede pr e c i a t i oni sa dde dba c k. B. Thef r e ec a s hflo wt oe qu i t ywi l la l wa y sbehi ghe rt ha nt hedi vi de nd. C.Thef r e ec a s hflo wt oe qui t ywi l la l wa y sbehi ghe rt ha nc a s hflo wt ot hefir m, be c a us et hel a t t e ri sapr e de btc a s hflo w. D.Thee nt i r ef r e ec a s hflo wt oe qui t yc a nnotbepa i douta sadi vi de ndbe c a us e s omeofi tha st obei n v e s t e di nne wpr oj e c t s . Que s t i on3-TheEffe c t sofI nflat i on

Ans we rt r ueorf a l s et ot hef ol l o wi n gs t a t e me nt sr e l a t i n gt ot hee ffe c tofi nfla t i onon c a s hflo wsa ndv a l ue . A. Di s c ount i n gnomi na lc a s hflo wsa tt her e a ldi s c ountr a t ewi l lr e s ul ti nt ool o wa n e s t i ma t eofv a l ue . B. Di c ount i n gr e a lc a s hflo wsa tt henomi na ldi s c ountr a t ewi l lr e s ul ti nt ool o wa n e s t i ma t eofv a l ue . C.I fdoner i ght ,t hev a l uee s t i ma t e ds houl dbet hes a mei fe i t he rr e a lc a s hflo wsa r e di s c ount e da tt her e a ldi s c ountr a t eornomi na lc a s hflo wsa r edi s c oun t e da tt he nomi na ldi s c ountr a t e . D.I fc ompa ni e sc a nr a i s epr i c e sa tt hes a mer a t ea si nfla t i on, t he i rv a l ues houl dnot bea ffe c t e db yc ha n g e si nt hei nfla t i onr a t e . E.I nfla t i ons houl di nc r e a s et hev a l ueofs t oc ksbe c a us ei ti nc r e a s e se xpe c t e df ut ur e c a s hflo ws . Que s t i on4-Es t i mat i ngCas hFl o ws :Di e bol dI nc or por at e d Di e bol dI nc or po r a t e dma nuf a c t ur e s ,ma r k e ...