Author Question: Discounted cash flow analysis is a valuation technique that: A) estimates the present value of ... (Read 81 times)

asmith134 · **on:** Jul 11, 2018

Discounted cash flow analysis is a valuation technique that:

A) estimates the present value of expected future cash flows.
B) uses comparable firms in the industry to project a market value of the firm.
C) uses multiples of earnings to project a price per share.
D) is the only accepted form of firm valuation by the American Society of Certified Public Accountants.

Question 2

Rocky Mountain Drilling Inc has a new shale oil field under development.

The firm estimates free cash flows to the firm (FCFF) of 2,000,000 at the end of one year and increases of 20 per year for each of the next two years, and then year-end fcff of 3,000,000 per year for five years before exhausting the oil in the field. If the firm has a WACC of 12.5, what is the value today of these expected cash flows?
A) 8,485,936
B) 10, 817,300
C) 13,198,893
D) 20,280,000

welcom1000 · **Reply #1 on:** Jul 11, 2018

Answer to Question 1

A

Answer to Question 2

C
Explanation: C) Using Excel, PV of 200000, 2400000, 2880000, 3000000, 3000000, 3000000, 3000000, 3000000, at a rate of 12.5.