Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Question 2: (25 marks) (a) A firm has positive free cash flow and a net dividend to shareholders that is less than free cash flow.

image text in transcribed

Question 2: (25 marks) (a) A firm has positive free cash flow and a net dividend to shareholders that is less than free cash flow. What must it do with the surplus of the free cash flow over the dividend? (5 marks) (b) Explain why it is common that firms with higher return on net operating assets (RONA) also have negative free cash flows. Also explain why such firms tend to have above- average forward P/E ratio. (5 marks) (c) P/B ratio is often said to indicate a growth stock. Explain under which situation a firm with high P/B can be a zero growth firm. marks) (d) Explain why a firm can have a low trailing P/E ratio but have a high expected earnings growth rate in the future. (5 marks) (e) Under what conditions would a firm's return on common equity (ROCE) be equal to its return on net operating assets (RNOA)? (5 marks) es Under conditions would never getum on common equity (ROCE) begun to my

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Auditing CPA Exam Review

Authors: Becker

1st Edition

1943628696, 978-1943628698

More Books

Students also viewed these Accounting questions