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Running head: MINI CASE MANAGERIAL FINANCIAL PROBLEMSMini Case Managerial Financial ProblemsInstitution AffiliationDate1MINI CASE MANAGERIAL FINANCIAL PROBLEMS2Free Cash Flow Valuation ModelFree cash flow refers to the finance amounts available to the organization after fixedliabilities are paid for. The Free Cash Flow (FCF) valuation model is a measurement of acompanys financial performance, and the focus is on the operational cash flow that arises fromdeduction of the costs that are used up in maintaining assets. The FCF formula can be written asFCF=OCF-NFAI-NCAI where OCF is Operating cash flow, NFAI is Net Fixed AssetInvestment and Net Capital Asset Investment. To show the only avenues that can affect thecapital structure, we take into account the horizon value. We need to consider the weightedaverage cost of capital which is the average of the cost of common equity, cost of debt andpreferred stock cost. Horizon value represents the present value of cash flows at a particular timein future which is discounted back at forecast periods ending at a weighted average cost ofcapital which means that operational value and the capital structure will be affected by horizonvalue. Therefore, capital structure will be affected by free cash flow (FCF), the weighted averagecost of capital and the growth rate (Ehrhardt & Brigham, 2017).Business RisksBusiness risks refer to the risks that a firm faces in terms of potential losses to theorganization and ...


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