Joe Watts, an analyst at EMH Securities, states: “I don’t know why anyone would ever try to value earnings. Obviously, the market knows that earnings can be manipulated and only values cash flows.” Discuss.
Answer to relevant QuestionsExplain why terminal values in accounting-based valuation are significantly lower than those for DCF valuation.Free cash flows (FCF) used in DCF valuations discussed in the chapter are defined as follows:FCF to debt and equity = Earnings before interest and taxes × (1-tax rate) + Depreciation and deferred taxes-Capital expenditures ...How would the abnormal earnings calculations in Table 8-3change if the cost of equity assumption is changed to 12%?What is the difference between fundamental and technical analysis? Can you think of any trading strategies that use technical analysis? What are the underlying assumptions made by these strategies?U.S. public companies with “low” leverage have an interest-bearing net debt-to-equity ratio of 0 percent or less, firms with “medium” leverage have a ratio between 1 and 62 percent, and “high” leverage firms have ...
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