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In the section of the book web site for this chapter, you will find an Excel file

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In the section of the book web site for this chapter, you will find an Excel file containing counterparts to the free cash flow table in Exhibit 3-3, but for forecasts and valuations made in 2010 and 2013. Use the analysis described in the chapter to investigate whether the terminal growth rates assumed in these tables is consistent with PVGO being zero. For this purpose, assume that over time, eBay maintains a constant ratio of depreciation to CapEx, and that this ratio is 52 percent.18 For this purpose, assume that over time, eBay maintains a constant 52 percent ratio of depreciation to CapEx.

Free Cash Flow
Free cash flow (FCF) represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. Unlike earnings or net income, free cash flow is a measure of profitability that excludes the...
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The following table contains the computations for calculating the growth rates assoc...View the full answer


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Behavioral Corporate Finance Concepts And Cases For Teaching Behavioral Finance

Behavioral Corporate Finance Concepts And Cases For Teaching Behavioral Finance

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Depreciation of non-current assets is the process of allocating the cost of the asset over its useful life. The cost of the asset includes the purchase price, any additional costs incurred to bring the asset to its current condition and location, and any other costs that are directly attributable to the asset. The useful life of the asset is the period over which the asset is expected to be used by the company. To calculate the depreciation, companies use different methods such as straight-line, declining-balance, sum-of-the-years\'-digits, units-of-production, and group depreciation. The chosen method will depend on the type of asset, the company\'s accounting policies, and the accounting standards that are applicable. The straight-line method allocates an equal amount of the asset\'s cost over its useful life, while the declining-balance method calculates depreciation at a fixed rate, typically double the straight-line rate, but the amount of depreciation decreases over time. The sum-of-the-years\'-digits method is similar to the declining-balance method, but the rate of depreciation is calculated using a fraction that is based on the useful life of the asset. It\'s important to note that the depreciation expense will be recorded on the company\'s income statement and the accumulated depreciation will be recorded on the company\'s balance sheet. This will decrease the value of the asset on the balance sheet over time.

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