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AFM
Syllabus B. Advanced Investment Appraisal

Syllabus B4. Valuation And The Use Of Free Cash Flows 16 / 17

a) Apply asset based, income based and cash flow based models to value equity. Apply appropriate models, including term structure of interest rates, the yield curve and credit spreads, to value corporate debt.

b) Forecast an organisation’s free cash flow and its free cash flow to equity (pre and post capital reinvestment).

c) Advise on the value of an organisation using its free cash flow and free cash flow to equity under alternative horizon and growth assumptions.

d) Explain the use of the BSOP model to estimate the value of equity of an organisation and discuss the implications of the model for a change in the value of equity.

e) Explain the role of BSOP model in the assessment of default risk, the value of debt and its potential recoverability.
Valuation And The Use Of Free Cash Flows