5. 6. Firms that do not pay dividends cannot be valued using the dividend discount model...

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5. 6. Firms that do not pay dividends cannot be valued using the dividend discount model but can be valued using the residual income model. A company's cost of debt is the contracted rate it pays on its outstanding debt. 7. Free Cash Flow to Equity can be less than net income. 8. An increase in stock price leads to lower implied cost of equity. 9. The dividend discount model will generally undervalue stocks relative to free cash flow to equity model. 10. Once a firm reaches steady state, the profit margins grow at the rate 'g'. 11. The Price to EBITDA ratio should not be used for relative valuation. 12. It is easier to value firms using FCFF as it does not require information about leverage. Consider trade credit as an unsecured source of financing. Recall we talked about it during our very first webinar. In summary, trade credit arises spontaneously when the firm purchases some merchandise from a supplier and then receives an invoice with a cash discount for early payment. In this exercise all I want from you is to create a financial model using excel studying various aspects of trade credit as a flexible source of short-term financing available to the firm. In your MS Excel file you might want to discuss about: the APR (effective cost) of the trade credit. The overall cost should also be discussed. Here are the assumptions related to the invoice: The invoice balance is $450,000. The terms of the invoice is 3/45, net 90. Attach an Excel file with your financial model in it. At the minimum you should discuss and produce the two numbered items above. In addition you might want to investigate another aspect of trade credit as well. Please consider what else can be analyzed with your financial model. nstructions ment 1 is to be completed individually! Do not seek help from anyone other than the instructor. Question 1 In this course, we defined Financial Modeling as the of financial data in a format. Question 2 What is the "Accounting Equation? ie what is the backbone of every balance sheet? M 6 pts and 6 pts 5. 6. Firms that do not pay dividends cannot be valued using the dividend discount model but can be valued using the residual income model. A company's cost of debt is the contracted rate it pays on its outstanding debt. 7. Free Cash Flow to Equity can be less than net income. 8. An increase in stock price leads to lower implied cost of equity. 9. The dividend discount model will generally undervalue stocks relative to free cash flow to equity model. 10. Once a firm reaches steady state, the profit margins grow at the rate 'g'. 11. The Price to EBITDA ratio should not be used for relative valuation. 12. It is easier to value firms using FCFF as it does not require information about leverage. Consider trade credit as an unsecured source of financing. Recall we talked about it during our very first webinar. In summary, trade credit arises spontaneously when the firm purchases some merchandise from a supplier and then receives an invoice with a cash discount for early payment. In this exercise all I want from you is to create a financial model using excel studying various aspects of trade credit as a flexible source of short-term financing available to the firm. In your MS Excel file you might want to discuss about: the APR (effective cost) of the trade credit. The overall cost should also be discussed. Here are the assumptions related to the invoice: The invoice balance is $450,000. The terms of the invoice is 3/45, net 90. Attach an Excel file with your financial model in it. At the minimum you should discuss and produce the two numbered items above. In addition you might want to investigate another aspect of trade credit as well. Please consider what else can be analyzed with your financial model. nstructions ment 1 is to be completed individually! Do not seek help from anyone other than the instructor. Question 1 In this course, we defined Financial Modeling as the of financial data in a format. Question 2 What is the "Accounting Equation? ie what is the backbone of every balance sheet? M 6 pts and 6 pts