The Current Cash Flow from Existing Assets Is Highly Relevant

question 53

True/False

The current cash flow from existing assets is highly relevant to the investor.However, since the value of the firm depends primarily upon its growth opportunities, profit projections from those opportunities are the only relevant future flows with which investors are concerned.

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Definitions:

Depreciation

The monetary value decrease of an asset over time due to use, wear and tear, or obsolescence.

Perpetuity Growth Rate

The steady rate at which the cash flows from a perpetuity are expected to grow indefinitely.

Terminal Value

Terminal Value is an estimate of a business's value in the future when it is expected to have stable growth; often used in discounted cash flow (DCF) analyses to estimate a company’s valuation at a specified future point.

Inflation Rate

A measure of the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.