Consider how free cash flows to the firm (FCFF) affect a company's equity market valuation. Assuming that a stock is "fairly" valued according to the DCF valuation method based upon consensus expectations, what would the following changes imply all else constant?
a. The company's leading competitor files for bankruptcy protection. This will allow the firm to increase its sales growth rate above consensus expectations by gaining substantial market share; the company will leverage its existing asset base to meet increased demand.
b. A new competitor has entered the market and the company must respond by upgrading its existing manufacturing processes via a large, multi-year capital expansion project.

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The Answer of Consider how free cash flows to the firm (FCFF) affect a company's equity market valuation. Assuming that a stock is "fairly" valued according to the DCF valuation method based upon consensus expectations, what would the following changes imply all else constant?
a. The company's leading competitor files for bankruptcy protection. This will allow the firm to increase its sales growth rate above consensus expectations by gaining substantial market share; the company will leverage its existing asset base to meet increased demand.
b. A new competitor has entered the market and the company must respond by upgrading its existing manufacturing processes via a large, multi-year capital expansion project.

Consider How Free Cash Flows to the Firm (FCFF) Affect