• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Ask AI
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

20% off ACCA & CIMA Books

OpenTuition recommends the new interactive BPP books for September 2025 exams.
Get your discount code >>

Free cash flow

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Free cash flow

  • This topic has 7 replies, 2 voices, and was last updated 10 years ago by John Moffat.
Viewing 8 posts - 1 through 8 (of 8 total)
  • Author
    Posts
  • November 3, 2014 at 4:43 pm #207422
    stacie395
    Participant
    • Topics: 39
    • Replies: 54
    • ☆☆

    Hi sir,

    Would like to know whenever we are required to perform free cash flow analysis, how should we determine when to use FCFF or FCFE…?

    thx…

    November 4, 2014 at 7:03 pm #207721
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54722
    • ☆☆☆☆☆

    Usually it will be free cash flow, discounted at the WACC.

    However, it depends on what is asked for in the question, and what information is available.

    I am afraid that there is no ‘rule’.

    November 12, 2014 at 2:09 pm #209364
    stacie395
    Participant
    • Topics: 39
    • Replies: 54
    • ☆☆

    Hi…wish to clarify on this issue :

    For Dec 2007 and June 2011, both questions require us to perform valuation for individual entity. But why for Dec 2007 (Burcolene) we do not need to calculate the present values…?…and for June 2011 (Fodder) we need to do so…?…What is the difference between them…?

    Thanx…

    November 12, 2014 at 5:31 pm #209423
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54722
    • ☆☆☆☆☆

    Barcelona does require the present value!!

    Because it is an inflating perpetuity it is not possible to discount in the normal way and so they have used the growth model formula – this does give the present value of an inflating perpetuity.

    November 12, 2014 at 5:41 pm #209426
    stacie395
    Participant
    • Topics: 39
    • Replies: 54
    • ☆☆

    Hi sir, can you explain in a much more simpler way…?…i am still confused…

    I supposed the same valuation formula has been used for both questions right…?

    November 12, 2014 at 6:24 pm #209452
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54722
    • ☆☆☆☆☆

    I cannot think of a simpler way.

    On the formula sheet there is the growth model formula.

    We usually use it to value shares and use the current dividend as Do. However, since the market value of a share is the present value of future dividends, the formula is calculating the present value of the growing perpetuity.

    We can use the same formula to calculate the PV of and cash flows that are growing in perpetuity – we just use the current case flow as Do.

    November 12, 2014 at 6:39 pm #209466
    stacie395
    Participant
    • Topics: 39
    • Replies: 54
    • ☆☆

    I think maybe my question is misunderstood. What i mean is, for dec 2007 burcolene, no discounting of free cash flow is done, but for jun 2011, for the valuation of fodder co, a discounting at its cost of capital is needed…?

    Thanx…

    November 12, 2014 at 7:00 pm #209477
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54722
    • ☆☆☆☆☆

    No – I understood your question perfectly. You have not read my answer properly.

    Using the growth model formula IS discounting a growing flow in perpetuity.

    Burcolene has therefore discounted.

  • Author
    Posts
Viewing 8 posts - 1 through 8 (of 8 total)
  • You must be logged in to reply to this topic.
Log In

Primary Sidebar

Donate
If you have benefited from our materials, please donate

ACCA News:

ACCA My Exam Performance for non-variant

Applied Skills exams is available NOW

ACCA Options:  “Read the Mind of the Marker” articles

Subscribe to ACCA’s Student Accountant Direct

ACCA CBE 2025 Exams

How was your exam, and what was the exam result?

BT CBE exam was.. | MA CBE exam was..
FA CBE exam was.. | LW CBE exam was..

Donate

If you have benefited from OpenTuition please donate.

PQ Magazine

Latest Comments

  • Tarak1450 on Financial management objectives – ACCA Financial Management (FM)
  • Ark1 on Pricing strategies – ACCA Performance Management (PM)
  • John Moffat on Accruals and Prepayments – ACCA Audit and Assurance (AA)
  • Rutjay on Accruals and Prepayments – ACCA Audit and Assurance (AA)
  • finance123 on Investment Appraisal – NPV, IRR – ACCA Management Accounting (MA)

Copyright © 2025 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in