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Advance coorperate finance - Essay Example

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Ph.D.
Essay
Finance & Accounting
Pages 3 (753 words)

Summary

The free cash flow is the measurement through which the financial performance of a firm can be detected.This is the amount that helps the company to analyze the profitability of the company as the expenses …

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Advance coorperate finance

Crown’s (Australia) FCFF grows continuously for the five years after which it takes a slight downward trend. This means at the fifth year of its operation it reaches maximum profitability level of the company beyond which level the expenses of the company increases resulting in decease in the FCFF of the company. The company projection has been made on the basis of both DCF and DDM approach where the former is 81.24 and the later is 50.27 which means that the market has been pessimistic for the duration of which the discounted cash flow and the dividend discount model has been computed. Contrarily the intrinsic value of the company being $4.46 as against the market price of the company at $9.06 indicates that the company shares are overvalued. Thus it will turn out to be beneficial for the sellers of the shares, while investors thinking of buying the shares of Crown should wait till the market price of the company dips a little. The P/E ratio of Crown is 20.46 while that of CNTY is 20.85; through this we can say that CNTY is in a better position than Crown. However, the higher P/E ratio is also an indication of the risk of the company being high as the market value of the company has fallen in comparison to the earning per share of the company. This effect can be brought about through the buyback of shares. (Cassia, Plati & Vismara 1-10). ...
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