- CFA Exams
- Dec. 2020 Level 2
- Study Session 11. Equity Valuation III
- Reading 28. Free Cash Flow Valuation

### Reading 28. Free Cash Flow Valuation

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### Learning Outcome Statements

Reading 28. Free Cash Flow Valuation | |
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1. FCFF and FCFE valuation approachesa. compare the free cash flow to the firm (FCFF) and free cash flow to equity (FCFE) approaches to valuation;
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2. Computing FCFF and FCFE from net income, EBIT, EBITDA, or CFOc. explain the appropriate adjustments to net income, earnings before interest and taxes (EBIT), earnings before interest, taxes, depreciation, and amortization (EBITDA), and cash flow from operations (CFO) to calculate FCFF and FCFE;
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3. Forecasting FCFF and FCFEe. describe approaches for forecasting FCFF and FCFE; | |

4. Other issues with free cash flow analysisf. compare the FCFE model and dividend discount models;g. explain how dividends, share repurchases, share issues, and changes in leverage may affect future FCFF and FCFE;
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5. Free cash flow model variationsi. explain the single-stage (stable-growth), two-stage, and three-stage FCFF and FCFE models and select and justify the appropriate model given a company's characteristics;j. estimate a company's value using the appropriate free cash flow model(s); k. explain the use of sensitivity analysis in FCFF and FCFE valuations;
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6. Terminal valuel. describe approaches for calculating the terminal value in a multistage valuation model; |