Capital Valuation, Value-Based Management, and CorporateGovernance
1. In a free cash flow model of firm value explain the term "horizon value." How is the computation of horizon value similar to the computations involved in the Constant Growth Rate model studied Chapter 7? (Two questions here-separate paragraphs needed.)
2. Value-based management concentrates on the (present) value of operations. Why?
3. How might the excessive cash needs of a young, rapidly-growing firm lead to an incorrect value of the firm's stock using the free cash flow approach?
4. List two of the so-called "value drivers" and briefly explain how each impacts cash flow and the value of operations. Number each explanation separately.
5. Sales growth alone is not enough to insure an increase in the firm's value of operations. Why not?