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Theimpactoffreecashflowonmarketvalueoffirm
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Twostagesaredependableinthispapertoexaminethisrelation,thefirstoneis
toshowthecomputationofFCFtoEquity(FCFE)fortheHikmapharmaceutical
company,thesecondstageistoshowtherelationbetweenFCFEandmarketvalue
ofthisfirm.
Thispaperproceedsasfollows.Sectiontwoistoprovideabriefdiscussionof
theliteraturereview,sectionthreeistodescribethemodelofFCFEanditscompu-
tationwiththerelationbetweenFCFEandmarketvalueoftheHikmafirm.Section
fourprovidestheconclusions.
2.Literaturereview
MohsenDastgirandothers[2010]
TheresearchershavetakenthemethodofcapitalcashflowdiscountedattheWeigh-
tedAverageCostofCapital(WACC)beforetaxasavaluationmethodof54firms
listedonTehranExchangeMarket.Theyfoundthatbyusingappropriatediscount
rateandconsideringthevalueoftaxshieldincalculation,theapplicationofcapital
cashflowinfirms`valuationwouldleadtothesameresultsastheothertwomethods
(CashFlowmethodandAdjustedPresentValue).
Sheng-SyanChenandothers[2009]
Theyinvestigatetheroleofinvestmentopportunitiesandfreecashflowinexpla-
iningthevalueenhancingpotentialofstockmarketliberalizationatthefirmlevel.
Theyfoundthatthemarkets`responsestostockmarketliberalizationannounce-
mentsaremorefavorableforhigh-growthfirmsthanforlow-growthfirms,aresult
thatisconsistentwiththeinvestmentopportunitieshypothesis.Theyalsofoundthat
firmswithhighcashflowexperiencelowerannouncement-periodreturnsassociated
withstockmarketliberalizationthandofirmswithlowcashflow.
JeanPaulDecampsandothers[2008]
Intheirarticle,theystudiedtheissuanceandpayoutpoliciesthatmaximizethevalue
ofafirmfacingbothagencycostsoffreecashflowandtheexternalfinancingcosts.
Theyfoundthatfirmoptimallyissuesequity.Equitydistributesnodividendsuntila
targetcashlevelisreachedwhilenewequityisissuedwhenthefirmrunsoutofcash.
Themaininsightofthispaperisthattheintroductionofexogenousissuancecostsis
enoughtogenerateheteroskedasticityofstockmarketprices,evenwhenearningis
independentlydistributed.
JamesA.Gentryandothers[2002]
Intheirarticle,theauthorstriedtodiscoverwhethertheaccountingearningapproach
orthefinanceFCFEapproachprovidesabetterexplanationforestimatingthecapital
gainratesofreturnonAmericanandJapaneseequities.Thisstudyfoundstrongsup-
