Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Under each of the scenarios below, explain the most appropriate valuation model that should be used to value that particular company (assume all companies are

Under each of the scenarios below, explain the most appropriate valuation model that should be used to value that particular company (assume all companies are public):

Scenario 1:

Johnstone Co. has had solid earnings over the past 3 years, but due to internal expansion uses all of its earnings to finance capital expansion resulting in negative free cash flows during the 3-year time period.

Model Explanation:

Scenario 2:

Jensen Corp. is a mature company with declining sales and earnings growth as well as capital investment. While the company has paid dividends over the past 3 years, the dividends per share over the past year was very low with a further decline expected in the near term. The company has used much of its positive operating cash flow to repurchase its common stock over this 3-year period.

Model Explanation:

Scenario 3:

Coal Mining International is a small cap company that extrapolates coal as its primary source of revenues. Given its unique production process, earnings and operating cash flows generated by the company are inconsistent due to frequent delays in mining coal and other issues. Commodity prices for coal and its peripheral products are readily available.

Model Explanation:

Scenario 4:

Conway Trucking Co. has generated sales and earnings growth of 25% over each of the past 3 years. To finance this growth, the company has used most of its internal operating cash flow with the issuance of new debt as a secondary source of financing for new capital expenditure and working capital investments. Despite the above, company stockholders have received a slight increase in dividends per share in each of the past 3 years:

Model Explanation:

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

Entrepreneurial Finance

Authors: Simon Hulme, Chris Drew

1st Edition

1352009811, 978-1352009811

More Books

Students also viewed these Finance questions

Question

2 3 8 . .

Answered: 1 week ago