Managers strive to increase the value of a firm. An increase in the intrinsic value of the firm’s stocks is a good measure of the increase in the value of the firm. Intrinsic value of a firm’s stock price is determined by calculating the present values of its free cash flows (FCF) discounted at a rate called the weighted average cost of capital (WACC). Tyler is a team member in Corporate Finance at a digital-content production company. He is required to forecast the free cash flows that the company will be able to generate in the next three years. Tyler takes into account only the following equation in his calculation: FCF = Sales Revenues – Operating Costs – Operating Taxes Will his calculation be an appropriate estimate of the FCF? No Yes Why or why not? Check all that apply. Because his calculation fails to include both the working capital and capital expenditures necessary to sustain the company’s operations Because his calculation fails to include the increase in the working capital required to grow sales Because his calculation fails to include the costs of the firm’s interest and dividend payments Because his calculation fails to recognize the increase in sales revenues

< back to assignment attempts: 1 1 keep the highest: 1 / 2 2. determining opportunity cost juanita is deciding whether to buy a suit that she wants, as well as where to buy it. three stores carry the same suit, but it is more convenient for juanita to get to some stores than others. for example, she can go to her local store, located 15 minutes away from where she works, and pay a marked-up price of $102 for the suit: store travel time each way price of a suit (minutes) (dollars per suit) local department store 15 102 across town 30 88 neighboring city 60 65 juanita makes $42 an hour at work. she has to take time off work to purchase her suit, so each hour away from work costs her $42 in lost income. assume that returning to work takes juanita the same amount of time as getting to a store and that it takes her 30 minutes to shop. as you answer the following questions, ignore the cost of gasoline and depreciation of her car when traveling. complete the following table by computing the opportunity cost of juanita's time and the total cost of shopping at each location. store opportunity cost of time price of a suit total cost (dollars) (dollars per suit) (dollars) local department store 102 across town 88 neighboring city 65 assume that juanita takes opportunity costs and the price of the suit into consideration when she shops. juanita will minimize the cost of the suit if she buys it from the . grade it now save & continue continue without saving

Cash flow is often a problem for small businesses. how can an entrepreneur increase cash flow? a) locate lower-priced suppliers. b) forego sending in estimated tax payments to the irs c) shorten the terms on a bank loan to pay it off more quickly d) sell more low-margin items.

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