If an Analyst Wants to Value a Potential Investment in the Net

question 31

Multiple Choice

If an analyst wants to value a potential investment in the net operating assets of a division of another firm,the relevant cash flows the analyst should use are:

• A) free cash flow from operations.
• B) free cash flows for all debt and equity capital stakeholders.
• C) free cash flows to common equity shareholders.
• D) cash flow from operations.

---

Definitions:

Payback Period

The time it takes for an investment to generate an amount of income or cash flow to recover the cost of the investment, indicating the investment's risk and liquidity.

Annual Cash Inflows

The total amount of money received by a company or individual in a year from various sources, excluding borrowings.

Straight-Line Depreciation

A way to distribute the outlay of a tangible resource over its service life in regular annual contributions.

Tax Rate

The percentage at which an individual or corporation is taxed on their income or profits.