Question

1. Operating Business:

a) Briefly describe the steps and procedure of financial planning. [8 Marks]

b) Describe the general assumption and principle used in FCF forecast.

2. Discounted Cash Flows formula:

a) Discuss the economic principle used in the formula. [8 Marks]

b) Describe how the consistency principle is involved in estimate a levered firm value.

Answer 1

As per policy, only one question is allowed to answer at a time, so answering Q1 :

1.)

a)Steps and of financial planning:

1: Defining the relation with finance and requirements ie. for which work or objective.

2 : Gathering the projects data as per requirement of the source of fund.

3 : The requirements are matched with data collected.

4 : Search and create alternatives towards financing proposals and recommendations should be made.

5 : As per recommendations, a proper source of finance is selected.

6 : Fulfilling the requirement of financing and follow-up of the progress of disbursements and executions.

b) The general assumption and principle used in FCF forecast are:

1 : Getting all non-capital expenditures deducted of the cash revenues and cash collections.

2 : From the net cash inward, all the capital expenditure is reduced to reach out to Free cash flow.

3 : Principlely, FCF is net of all expenses and deductions and it belongs to the owner of the business.

4 : Assumptions towards FCF forecast is that all cash is attributable to shareholders.

5 : It is presumed that all debts and preferred dividends have been paid and FCF is net of all.

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