Corporate Finance: Free Cash Flow, WACC, and Orders

This document presents an analysis of key corporate finance concepts. It defines and explains free cash flow (FCF) and its significance in evaluating a company's ability to generate cash for various purposes like expansion, debt reduction, and dividends. The assignment also describes the weighted average cost of capital (WACC) and how it's used to determine a firm's cost of capital, emphasizing its interaction with FCF in determining firm value. It further explores the cost of debt capital, the components of equity cost of capital, and the fundamental factors affecting the cost of money, including production opportunities, inflation, risk, and consumer preferences, along with the economic conditions impacting these costs. Finally, the assignment differentiates between market and limit orders, highlighting their distinct trade execution methods. The provided references include the textbook used for the assignment.

Running head: CORPORATE FINANCE
Corporate Finance
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
f. Indicating what is free cash flow:...........................................................................................2
g. Describing about weighted average cost of capital:...............................................................2
h. Indicating how free cash flow and weighted average cost of capital interact to determine
firms value:.................................................................................................................................2
j. Stating the cost borrower uses for paying debt capital, while indicating two components
make up the cost of using equity cost of capital and stating the four fundamental factors that
affect cost of money or the general level of interest rates:........................................................3
k. Indicating the economic conditions that affect cost of money:..............................................3
p. Stating the difference between market orders and limit orders:............................................3
Reference and Bibliography:......................................................................................................5

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f. Indicating what is free cash flow:
Free cash flow is the measure for detecting the capability of a business to generate
adequate cash from its operations after deducting expenses such as capital expenditure.
Moreover, the free cash flow can eventually help in detecting the level of income that is
obtained by the company, which can be sued for expansion, debt reduction, dividends and
other operational purposes. The free cash flow allows organisation to determine the level of
cash inflows that can be generated from a proposed project, as it allows them to make
adequate investment decisions (Brigham et al. 2016).
g. Describing about weighted average cost of capital:
Weighted average cost of capital is mainly a calculation, which is used by investors to
determine the firm’s cost of capital by weighing each category of capital used by the
organisation. With the help of weighted average cost of capital companies are able to detect
the minimum cost of capital, which is used while analysing investment projects. The
weighted average cost of capital uses cost of equity, cost of debt and other components of the
capital to determine the minimum returns needed by the company.
h. Indicating how free cash flow and weighted average cost of capital interact to
determine firms value:
Free cash flow and weighted average cost of capital is used by the company to
determine the firms value, which evaluates the free cash flow that can be discounted at the
cost of capital rate. In addition, the firms expected free cash flows are discounted by using the
weighted average cost of capital, which eventually portrays the firms value in the current
fiscal year by evaluating the future free cash flows (Brigham et al. 2016).

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j. Stating the cost borrower uses for paying debt capital, while indicating two
components make up the cost of using equity cost of capital and stating the four
fundamental factors that affect cost of money or the general level of interest rates:
The call price that borrower uses for paying debt capital are interest expense, which
allows the company to acquire the required fund on loan or debt. The major components of
the cost of equity capital are dividends plus the capital gains, which is generated from
investment by the stockholders. Moreover, the four fundamental factor that affect the cost of
money or the general level of interest rates are production opportunities, expected inflation,
risk attributes and preference of consumers. The cost of money relevantly increases, where
the risk and interest rate of the capital raises. Moreover, the production opportunities of the
company also affect cost of money, as it provides the investors assurity regarding the
payment structure of the company.
k. Indicating the economic conditions that affect cost of money:
The cost of money is relevantly affected by the policies enforced from federal
government. Moreover, the cost of money is also affected by the foreign trade deficits and
specific country risk under the economic conditions. Therefore, adverse economic conditions
of the country can also have effect on the cost of money, which in turn might negatively alter
the position of the organisation (Brigham et al. 2016).
p. Stating the difference between market orders and limit orders:
There is specific difference between market orders and limit orders, as they are to
specific trade executing method used by investors during the commencements of the trade.
The market orders are considered the market share price of a stock, which is used while
commencing the trade. On the other hand, the limit order executes the trade on specific share
price, which is intended by the investors. Moreover, the market order ensures that the trade is

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executed, while the limit order has certain restrain, as the specific share price may never hit
the trade value.

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Reference and Bibliography:
Brigham, E.F., Ehrhardt, M.C., Nason, R.R. and Gessaroli, J., 2016. Financial Managment:
Theory And Practice, Canadian Edition. Nelson Education.
Hayes, J., 2018. The theory and practice of change management.