Economics question

75. Regarding the WACC that has to be applied to a project, should it be an expected return, an opportunity cost or the average historical return on similar projects? 76. Could we assume that, as we cannot predict the future evolution of the value of shares, a good approximation would be to consider it constant during the next five years? 77. The reasonable thing to do is to finance current assets (collections, inventories..) with short-term debt, and fixed assets with long-term debt. Is this correct? 78. Is the market risk premium a parameter for the national economy or for the world economy? 79. The market risk premium is the difference between the historical return on the stock market and the return on bonds. But how many years does "historical" imply? Shall we use the arithmetic mean or the geometric one? 80. We are valuing a company, a lot smaller than ours, in order to buy it. As that company is a lot smaller than ours it will have no influence on the capital structure and on the risk of the resulting company. This is the reason why I believe that the beta and the capital structure which are relevant to the valuation of the company we are analyzing are the ones of our company. Am I right? 81. Our company (A) is going to buy another company (B). We want to value the shares of B and, therefore, we will use three alternatives of the structure Debt/Shareholders' Equity so as to obtain the WACC: 1) present structure of A; 2) present structure of B, and 3) structure used by A to finance the acquisition of B's shares. We will value the company B by applying these three alternatives and then take as a reference the average of the results. Is this correct? 82. When valuing the shares of my company, I calculate the present value of the expected cash flows to shareholders and I add to the result obtained cash holdings and liquid investments. Is that correct? 83. I think the Free Cash Flow (FCF) can be obtained from the Equity Cash Flow (CFac) by using the relation: FCF - CFac + Interests - AD. Is this true? 84. Is the relation between capitalization and book value of shares a good guide to investments? 85. Does it make any sense to form a portfolio comprised of companies with a higher return per dividend? 86. A financial consultant is valuing the company I set as an objective (an entertainment centre) by discounting the cash flows until the end of the dealership at 7.26% (interest rate on 30-year-bonds - 5.1%; market premium = 5%, and Beta = 0.47%). 0.47 is a beta provided by Bloomberg for Kinepolis (the company whose activity is the management of several cinemas in the EU), in function of the Dax Index. Is it correct to use the beta of Kinepolis in this valuation? 87. I am confused because I see different formulae to lever and unlever betas in different books (Damodaran, Mckinsey, Brealey & Myers ..). Which is the correct one?62. What repercussions do variations in the price of oil have on the value of a company? 63. How can an auditor spot acts of creative accounting? I mean, for example, the excess of provisions or the non-elimination of intra group transactions with value added. 64. I heard talk of the Earnings Yield Gap ratio, which is the difference between the inverse of the PER and the TIR on 10-year-bonds. It is said that if this ratio is positive then it is more advantageous to invest in equity. How much confidence can an investor have in such an affirmation? 65. I have a doubt regarding the Enron case. How could such a prestigious investment bank advise investing when the quotations of the shares were falling? 66. Is the following affirmation of an accountancy expert true? "The valuation criterion which reflects the value of the shares of a company in the most accurate manner is based on the amount of the shareholder's equity of its balance sheet. Stating that the value of a company's shares equals its book value is a valid argument." 67. Could we say that goodwill is equivalent to brand value? 68. Could we say that the value of shares is intangible? 69. When calculating the WACC, is the weighting of the debt and the shares done with book values of debt and shareholder's equity or with market values? 70. The market risk premium is the difference between the historical return on the stock market and the risk-free rate, for every year. Why is it negative for some years? 71. Is it correct to use in the valuation of the shares of a company the "value of the real net assets" which, according to the Institute of Accounting and Auditing (ICAC), represents the "book value of shareholder's equity, corrected by increases or decreasing in value which could be demonstrated, in the case of the goods, rights and obligations of the company at the reference date?" 72. Is it correct to say that the value of the shares is the "value of the results' capitalization" which, according to the Institute of Accounting and Auditing (ICAC) represents "the sum of the expected future results of the company during a certain period, discounted at the moment of the valuation?" 73. Is it true that a company creates value for its shareholders during a year if it distributes dividends or if the quotation of the shares increases? 74. The ROE (Return on Equity) is the ratio between net income and Shareholders' equity. The meaning of ROE is return to shareholders. Consequently, is ROE a correct measurement of the return to shareholders?47. How can we calculate a company's cost of capital in emerging nations, especially when there is no state bond which we could take as a reference? 48. How can an industrial company inflate the value of its inventory so as to reduce net income and the taxes is has to pay that year? 49. According to the valuation method based on tax shields, the value of the company (VI) is the value of the unleveraged company (Vu) plus the value of tax shields (VTS). Therefore, the higher the interest, the higher the VTS. So, does the value of the company increase if I call my bank and tell them to charge me double the interest? 50. I cannot seem to start a valuation. In order to calculate E + D = VA (FCF; WACC) I need the WACC and in order to calculate the WACC I need D and E. Where should I start? 51. Does the book value of the debt always coincide with its market value? 52. Is the Free Cash Flow (FCF) the sum of the equity cash flow and the debt cash flow? 53. What is NOPAT (Net Operating Profit After Tax)? 54. What is EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization)? 55. I do not understand the meaning of Working Capital Requirements. I think it should be similar to Working Capital (Current Assets - Current Liabilities). Am I right? 56. Why can we not calculate the required return (Ke) from the Gordon-Shapiro model [Po - Divo (1+g) / (Ke - g]] instead of using the CAPM? As we know the current dividend (Diva) and the current share price (Pa), we can obtain the growth rate of the dividend from the formula g - ROE (1-p)/(1 - ROE (1-p)), p being the payout. 57. Assume I calculate g as ROE (1-p)/(1-ROE (1-p]) and the Ke from the CAPM. I replace both values in the formula PER - (ROE (1+g) - g)/ROE (Ke-g) but the PER I obtain is totally different from the one I get by dividing the quotation of the share to the earnings per share. Is it possible to interpret that difference as an overvaluation or undervaluation of that share on the market? 58. I was assigned a valuation of the shares of a pharmaceutical laboratory. Which valuation method is more convenient? 59. I need to know how to value a company well, but I cannot clearly see the valuation process of a company starting from its past income statements. What are the systematical steps I need to take? Firstly, I think I should elaborate the provisional statements for the following fiscal years and then calculate the cash flows, discount them at the present moment (with a discount factor), add the terminal value to it and the difference between the book net value and the market value of intangibles. I really need that these steps be methodical and easy to understand so I can use them as a guide when valuing a company. 60. What is a 3 x 1 Split? 61. A court assigned to me (as an economist and auditor) a valuation of a market butcher's. The butcher's did not provide any simple income statements or any valuable information which I could use in my valuation. It is a small business with just two employees, the owner and an apprentice. This type of tax system exempts them of27. Is it possible to value companies by calculating the present value of the EVA (Economic Value Added)? Which are the necessary hypotheses so that such valuations provide similar results to discounting cash flows? 28. At times, companies accuse investors of performing credit sales that they make their quotations fall. Is that true? 29. What impact does high inflation have on the value of a business? 30. Is it possible to use different WACCs in order to discount each year's flows? In which cases? 31. Is there any relationship between the net income and the flow to shareholders? 32. Is it true that very few Spanish mutual funds outperform their benchmark? Isn't it strange? 33. What is the significance and the utility of the following formula: Ke - DIV(1+g)/P + g? 34. What is the market risk premium in Spain at the present moment - the number which I have to use in the valuations? 35. Is the difference between the market value of the shares (capitalization) and their book value a good measure for the value creation in a company since its foundation? 36. Is it better to buy shares of a company or its assets? 37. Does the expected value of the sales and of the net income of Spanish companies have anything to do with sustainable growth? 38. Is PER a good guide to investments? 39. Is there an optimal capital structure? What is it and how can it be calculated? 40. Does financial leverage (debt) have any impact on the Free Cash Flow, on the Cash Flow to Shareholders, on the growth of the company and on the value of the shares? 41. Is it true that if a company does not distribute dividends then the cost of its equity is zero? 42. What is the influence of auto portfolio in the quotation of the shares? 43. Why do a Split? 44. The National Company responsible for the company where I work has recently published a document stating that the levered beta of the sector of energy transportation is 0.471870073 (yes, 9 decimals). They obtained this number by considering the betas in the sector, ranging between -0.24 and 1.16. What is the point of being so precise with the betas? Does it make any sense to apply the same beta to all the companies in a sector? 45. What is the Capital Cash Flow? Is it the same with Free Cash Flow? 46. Is there any consensus between the main authors in finance regarding the market risk premium