Financial Management Theory and Practice

Added on - 28 May 2020

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Running head: FINANCIAL MANAGEMENT: THEORY AND PRACTICEFinancial Management: Theory and PracticeName of the StudentName of the UniversityAuthors NoteCourse ID
1FINANCIAL MANAGEMENT: THEORY AND PRACTICETable of ContentsMini Case...................................................................................................................................2Answer to Part B (1)..................................................................................................................2Answer to Part B (2)..................................................................................................................2Mini Case...................................................................................................................................3Answer to part A........................................................................................................................3Answer to part B........................................................................................................................4Mini Case...................................................................................................................................4Answer to Part A (1)..................................................................................................................4Answer to Part A (2)..................................................................................................................4Answer to Part A (3)..................................................................................................................5Answer to Part A (4)..................................................................................................................5Answer to Part B........................................................................................................................5Reference List............................................................................................................................7
2FINANCIAL MANAGEMENT: THEORY AND PRACTICEMini CaseAnswer to part AAs per the definition of free cash flow valuation model the basic definitions aredepicted with:“V=Value of firm”“FCF=Free Cash Flow”“WACC=Weighted Average Cost of Capital”“rsand rdare related to stock and debt”“ws and wd = Percentage of the firm which is financed with debt and stock”The implication of the capital structure on the value is taken into account with theeffect of debt on WACC and FCF.Answer to Part B (1)The business risk pertains to the uncertainty in the EBIT. The other risk factorsinclude demand uncertainty of the unit sales, output price, input price, degree of operatingleverage, type of liabilities and products.Answer to Part B (2)Operating leverage is considered as the change in EBIT as a result of the deviationson the quantity sold. It needs to be further ascertained that with higher rate of the fixed costs,the greater is amount of operating leverage. Similarly, the higher form of the operating
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