Advanced Corporate Finance Valuation I. Thomas J. Chemmanur Carroll School of Management Boston College


 Abigail Ellis
 2 years ago
 Views:
Transcription
1 Advanced Corporate Finance Valuation I Thomas J. Chemmanur Carroll School of Management Boston College
2 Valuation A variety of circumstances where value has to be established without using market value: 1. IPOs 2. Corporate control transactions: acquisitions, management buyouts, etc. 3. Valuing closely held business for gift & estate taxes, divorce settlements, etc.
3 Valuation techniques 1. Cash flow approaches 2. Valuation using comparable firm ratios or multiples 3. Assetbased approaches. Various advantages and disadvantages for each. Cash flow approaches best theoretical footing but difficult to estimate future cash flows and discounting rates in many situations.
4 Method of Comparables Works if and only if a truly comparable group is available. Can reduce the probability of misvaluing a firm relative to others in the sector, but the whole sector may be undervalued or overvalued. Often used in many IPOs.
5 ASSET BASED APPROACHES Looks at the underlying value of a company s assets. Most useful when a significant portion of a company s assets can be liquidated readily at welldetermined market prices. Not useful for most IPOs.
6 CASH FLOW BASED APPROACHES 1. Free cash flow (FCF) 2. Capital cash flow (CCF) 3. Equity cash flow (ECF) All based on the idea that price = PV of cash flow. We will value a simple firm using all three of the above approaches to illustrate their use, and their similarities and differences
7 * All start with EBIT (Earnings before interest and taxes). * Cash flow adjustments made to EBIT to transform accounting recognition of receipts and expenses to cash flow definitions. * EBIT  capital expenditure + depreciation  changes in working capital = operating cash flow
8 * The cash flow concepts differ in the discounting rate to be used (because they differ in riskiness). Numerical illustration: Assumptions Perpetual cash flow (either no growth or 5% growth). All cash flows proportional to sales, $5,000. EBIT margin: 40%
9 Depreciation: 10% of sales. Capital expenditure: depreciation + 10% of growth in sales Interest payment per period = $293 Change in working capital = 10% of growth in sales.
10 Table A: Capital Cash Flow Valuation Assumptions: Asset beta = 1 Riskfree = 10% Risk Premium = 8% Interest = $293 Interest = $395 Growth rate 0% 5% Sales 5,000 5,000 EBIT margin 40% 40% EBIT 2,000 2,000 Depreciation a Capital Expenditures b Change in Working Capital c 0 50 Operating Cash Flow 2,000 1,925 Tax at 40% of EBIT less interest d Capital Cash Flow e 1,317 1,283 Expected Asset Return f 18.0% 18.0% Capital Cash Flow Value g 7,317 9,868 a Depreciation is assumed to be 10% of sales. b Capital Expenditures are assumed to be equal to depreciation plus 10% of the change in sales. c Assumed to be 20% of the change in sales. d Debt is assumed to be riskfree with an interest rate equal to the riskfree rate. The amount of debt is computed using the debttototal value assumption of 40%. e Capital Cash Flow equals Operating Cash Flow less taxes. f Expected asset return is computed using the CAPM: Riskfree rate + [Asset Beta] [Risk Premium] = 10% + [1] [8%] = 18%. g Computed as growing perpetuity: CCF/[Expected Asset return Growth rate].
11 Capital Cash Flow (CCF) = Operating cash flow  taxes Riskiness of Capital Cash Flow (CCF) = Risk of firm assets. Let β D = 0, β A = 1, Rm  Rf = 8%, Rf = 10% Expected return: R A = Rf + β A [Rm  Rf] = (8) = 18%. No growth case: CCF VALUE OF FIRM = 1317/0.18 = % growth case: CCF VALUE = CCF/(r A  g) = 1283/( ) = 9868
12 Table B: Equity Cash Flow Valuation Assumptions: Asset beta = 1 Riskfree = 10% Risk Premium = 8% Interest = $293 Growth 0% Sales 5,000 EBIT margin 40% EBIT 2,000 Depreciation a 500 Capital Expenditures b 500 Change in Working Capital c 0 Operating Cash Flow 2,000 Tax at 40% of EBIT less interest d 683 Interest 293 Change in debt e 0 Debt Cash Flow 293 Equity Cash Flow f 1,024 Expected Equity Return g 23.3% Equity Cash Flow Value h 4,390 Debt Value i 2927 Equity Cash Flow and Debt Value (Firm Value) 7,317 Note: We focus only on the zero growth case in this example and the next (tables B and C).
13 Equity cash flow = Cash flow to equity = OCF  Taxes  Interest  Debt Repayments OR Equity cash flow = capital cash flow  debt cash flows Equity cash flows are discounted at the cost of equity to get equity value: E/V = 0.6, D/V = 0.4, β D = 0 β E = β A /(E/V) = 1/0.6 = 1.67 R E = Rf + β E (Rm  Rf) = (8) = 23.3%
14 Equity Value = ECF/ r e in no growth case = 1024/0.233 = 4390 CCF value = equity value + debt value Debt value = 293/0.1 = Interest/Rf = 2927 Firm value = equity value + debt value = 7317 (Same as before) Note: In both the Capital Cash Flow and the Equity Cash Flow methods, we account for tax effects only in the cash flow, not in the discounting rate (otherwise we would be doublecounting).
15 Table C: Free Cash Flow Valuation Assumptions: Asset beta = 1 Riskfree = 10% Risk Premium = 8% Growth 0% Sales 5,000 EBIT margin 40% EBIT 2,000 Depreciation a 500 Capital Expenditures b 500 Change in Working Capital c 0 Operating Cash Flow 2,000 Tax at 40% of EBIT 800 Free Cash Flow d 1,200 Weighted Average Cost of Capital e 16.4% Free Cash Flow Value f 7,317
16 Free cash flow (FCF) = Does not include debt benefits (tax shield) in cash flows (i.e., in the numerator) Instead, tax benefits of debt are included in the discount rate (i.e., in the denominator) in the Free Cash Flow Valuation of a firm FCF = Operating cash flow  Notional (or hypothetical ) taxes WACC = (D/V)(1  Tc)R D +(E/V)R E (1) From table B, we know that debt value = 2927, So: D/V = 2927/7317 = 0.4
17 E/V = 1  D/V Therefore, Equity value/firm value = E/V = = 0.6 Tc = 0.4 or 40% From formula (1): WACC = 0.4(10.4)10% + 0.6(23.3%) Since r E = 23.3% From previous (Table B) computation Therefore, WACC = 16.4%, which should be used to discount Free Cash Flow when valuing a firm using this technique
18 Therefore, firm value using Free Cash Flow method = Free cash flow/wacc for zero growth (perpetuity) case. = 1200/0.164 = 7317, which is the same as that we obtained using the CCF and the ECF methods.
19
Equity Analysis and Capital Structure. A New Venture s Perspective
Equity Analysis and Capital Structure A New Venture s Perspective 1 Venture s Capital Structure ASSETS Short term Assets Cash A/R Inventories Long term Assets Plant and Equipment Intellectual Property
More informationCHAPTER 18. Capital Budgeting and Valuation with Leverage. Chapter Synopsis
CHAPTER 18 Capital Budgeting and Valuation with everage Chapter Synopsis 18.1 Overview of Key Concepts There are three discounted cash flow valuation methods: the weighted average cost of capital (WACC)
More informationInterview Questions. From Joshua Rosenbaum and Joshua Pearl Coauthors of Investment Banking: Valuation, Leveraged Buyouts, and Mergers & Acquisitions
Interview Questions From Joshua Rosenbaum and Joshua Pearl Coauthors of Investment Banking: Valuation, Leveraged Buyouts, and Mergers & Acquisitions How do the three primary financial statements link
More informationCHAPTER 12 RISK, COST OF CAPITAL, AND CAPITAL BUDGETING
CHAPTER 12 RISK, COST OF CAPITAL, AND CAPITAL BUDGETING Answers to Concepts Review and Critical Thinking Questions 1. No. The cost of capital depends on the risk of the project, not the source of the money.
More informationValuating the levered firm
Valuating the levered firm Valuation and Capital Budgeting for the Levered Firm 180 Introduction In a strict MM world, firms can analyze real investments as if they are allequityfinanced. Under MM assumptions,
More informationCHAPTER 14 COST OF CAPITAL
CHAPTER 14 COST OF CAPITAL Answers to Concepts Review and Critical Thinking Questions 1. It is the minimum rate of return the firm must earn overall on its existing assets. If it earns more than this,
More informationCHAPTER II LITERATURE REVIEW
CHAPTER II LITERATURE REVIEW 2.1 Financial Ratios Analysis Financial ratios are important to analysts due to conquer the little meaning of typically numbers. Thus, ratios are intended to provide meaningful
More informationINTERVIEWS  FINANCIAL MODELING
420 W. 118th Street, Room 420 New York, NY 10027 P: 2128544613 F: 2128546190 www.sipa.columbia.edu/ocs INTERVIEWS  FINANCIAL MODELING Basic valuation concepts are among the most popular technical
More informationRevisiting WACC) By S. K. Mitra Institute of Management Technology, Nagpur, India.
Global Journal of Management and Business Research Volume Issue Version.0 November 20 Type: Double Blind Peer Reviewed International Research Journal Publisher: Global Journals Inc. (USA) Online ISSN:
More informationNIKE Case Study Solutions
NIKE Case Study Solutions Professor Corwin This case study includes several problems related to the valuation of Nike. We will work through these problems throughout the course to demonstrate some of the
More informationCapital Cash Flows: A Simple Approach to Valuing Risky Cash Flows
Capital Cash Flows: A Simple Approach to Valuing Risky Cash Flows Richard S. Ruback Graduate School of Business Administration Harvard University Boston, MA 02163 email: rruback@hbs.edu ABSTRACT This paper
More informationChapter 3 Free Cash Flow Valuation
Solutions Chapter 3 Free Cash Flow Valuation 1. $100 increase in: Change in FCFF Change in FCFE A. Net income +100 +100 B. Cash operating expenses 60 60 C. Depreciation +40 +40 D. Interest expense 0 60
More information: Corporate Finance. Valuation and Capital Structure
380.760: Corporate Finance Lecture 9: Advanced Valuation with Capital Structure Professor Gordon M. Bodnar 2008 Gordon Bodnar, 2008 Valuation and Capital Structure In the real world with market imperfections,
More informationKEY EQUATIONS APPENDIX CHAPTER 2 CHAPTER 3
KEY EQUATIONS B CHAPTER 2 1. The balance sheet identity or equation: Assets Liabilities Shareholders equity [2.1] 2. The income statement equation: Revenues Expenses Income [2.2] 3.The cash flow identity:
More informationENTREPRENEURIAL FINANCE: Strategy Valuation and Deal Structure
ENTREPRENEURIAL FINANCE: Strategy Valuation and Deal Structure Chapter 9 Valuation Questions and Problems 1. You are considering purchasing shares of DeltaCad Inc. for $40/share. Your analysis of the company
More informationUSING THE EQUITY RESIDUAL APPROACH TO VALUATION: AN EXAMPLE
Graduate School of Business Administration  University of Virginia USING THE EQUITY RESIDUAL APPROACH TO VALUATION: AN EXAMPLE Planned changes in capital structure over time increase the complexity of
More informationConsistent valuation of project finance and LBO's using the flowstoequity method
Consistent valuation of project finance and LBO's using the flowstoequity method Ian Cooper and Kjell G. Nyborg 1 This revision: November 2010 Abstract A common method of valuing the equity in leveraged
More informationChapter 5: Valuation. Albert BanalEstanol
Corporate Finance Chapter 5: Valuation Company valuation Valuation methods: Based on comparables or multiples Discounting cash flows: Weighted average cost of capital (WACC) Adjusted present value Flow
More informationValuation Free Cash Flows. Katharina Lewellen Finance Theory II April 2, 2003
Valuation Free Cash Flows Katharina Lewellen Finance Theory II April 2, 2003 Valuation Tools A key task of managers is to undertake valuation exercises in order to allocate capital between mutually exclusive
More informationEconomic Feasibility Studies
Economic Feasibility Studies ١ Introduction Every long term decision the firm makes is a capital budgeting decision whenever it changes the company s cash flows. The difficulty with making these decisions
More informationIndustrial and investment analysis as a tool for regulation
Industrial and investment analysis as a tool for regulation Marina Di Giacomo, Università di Torino Turin School of Local Regulation International Summer School on Regulation of Local Public Services 1
More informationCost of Capital and Project Valuation
Cost of Capital and Project Valuation 1 Background Firm organization There are four types: sole proprietorships partnerships limited liability companies corporations Each organizational form has different
More informationGESTÃO FINANCEIRA II PROBLEM SET 5 SOLUTIONS (FROM BERK AND DEMARZO S CORPORATE FINANCE ) LICENCIATURA UNDERGRADUATE COURSE
GESTÃO FINANCEIRA II PROBLEM SET 5 SOLUTIONS (FROM BERK AND DEMARZO S CORPORATE FINANCE ) LICENCIATURA UNDERGRADUATE COURSE 1 ST SEMESTER 20102011 Chapter 18 Capital Budgeting and Valuation with Leverage
More informationCOST OF CAPITAL. Please note that in finance, we are concerned with MARKET VALUES (unlike accounting, which is concerned with book values).
COST OF CAPITAL Cost of capital calculations are a very important part of finance. To value a project, it is important to discount the cash flows using a discount rate that incorporates the debtequity
More informationCorporate Finance & Options: MGT 891 Homework #6 Answers
Corporate Finance & Options: MGT 891 Homework #6 Answers Question 1 A. The APV rule states that the present value of the firm equals it all equity value plus the present value of the tax shield. In this
More informationISSUES ON USING THE DISCOUNTED CASH FLOWS METHODS FOR ASSET VALUATION
ISSUES ON USING THE DISCOUNTED CASH FLOWS METHODS FOR ASSET VALUATION CRISTINA AURORA BUNEABONTAŞ 1, MIHAELA COSMINA PETRE 2 CONSTANTIN BRANCOVEANU UNIVERSITY OF PITESTI, FACULTY OF MANAGEMENTMARKETING
More informationValuation approaches to Mergers & Acquisitions
Valuation approaches to Mergers & Acquisitions Sagar Gokani, Chief Manager M&A & IR, Piramal Healthcare Limited 7 th July 2012 Contents Approaches to Valuation Discounted Cash Flow Relative Valuation Valuing
More informationPractice Exam (Solutions)
Practice Exam (Solutions) June 6, 2008 Course: Finance for AEO Length: 2 hours Lecturer: Paul Sengmüller Students are expected to conduct themselves properly during examinations and to obey any instructions
More informationModule 3: The Venture Capital Negotiation and Investment Process TABLE OF CONTENTS
Module 3: The Venture Capital Negotiation and Investment Process Valuations Module 3: The Venture Capital Negotiation and Investment Process Valuations 1.0 BUILDING PROFORMA FINANCIAL STATEMENTS 1.01
More informationEquity Valuation. Lecture Notes # 8. 3 Choice of the Appropriate Discount Rate 2. 4 Future Cash Flows: the Dividend Discount Model (DDM) 3
Equity Valuation Lecture Notes # 8 Contents About Valuation 2 2 PresentValues 2 3 Choice of the Appropriate Discount Rate 2 4 Future Cash Flows: the Dividend Discount Model (DDM) 3 5 The TwoStage DividendGrowth
More informationSource of Finance and their Relative Costs F. COST OF CAPITAL
F. COST OF CAPITAL 1. Source of Finance and their Relative Costs 2. Estimating the Cost of Equity 3. Estimating the Cost of Debt and Other Capital Instruments 4. Estimating the Overall Cost of Capital
More informationFinancial Modeling & Corporate Valuations
Financial Modeling & Corporate Valuations Presented by Affan Sajjad ACA Cell # 03219400788 Presenter Profile Passed CA exams in December 2004 Became Associate Member of ICAP in November 2005 Completed
More informationCorporate Finance: Final Exam
Corporate Finance: Final Exam Answer all questions and show necessary work. Please be brief. This is an open books, open notes exam. 1. DayTop Inns is a publicly traded company, with 10 million shares
More informationThe value of tax shields is NOT equal to the present value of tax shields
The value of tax shields is NOT equal to the present value of tax shields Pablo Fernández * IESE Business School. University of Navarra. Madrid, Spain ABSTRACT We show that the value of tax shields is
More informationNew Venture Valuation
New Venture Valuation Antoinette Schoar MIT Sloan School of Management 15.431 Spring 2011 What is Different About Valuing New Ventures? Higher risks and higher uncertainty Potential rewards higher? Option
More informationHHIF Lecture Series: Discounted Cash Flow Model
HHIF Lecture Series: Discounted Cash Flow Model Alexander Remorov University of Toronto November 19, 2010 Alexander Remorov (University of Toronto) HHIF Lecture Series: Discounted Cash Flow Model 1 / 18
More informationCIMA F3 Course Notes. Chapter 11. Company valuations
CIMA F3 Course Notes Chapter 11 Company valuations Personal use only  not licensed for use on courses 144 1. Company valuations There are several methods of valuing the equity of a company. The simplest
More informationEconomic Value Added (EVA) Valuation Tutorial
Economic Value Added (EVA) Valuation Tutorial Index 1. Introduction to valuation: valuation of bond 2. Company valuation Determing the cost of capital Calculating EVA 3. Detailed examples of EVAvaluation
More informationCurrent Ratio: Current Assets / Current Liabilities. Measure of whether company has enough cash to cover immediate expenses
1 Beta: a measure of a stock s volatility relative to the overall market (typically the S&P500 index is used as a proxy for the overall market ). The higher the beta, the more volatile the stock price.
More informationDCF and WACC calculation: Theory meets practice
www.pwc.com DCF and WACC calculation: Theory meets practice Table of contents Section 1. Fair value and company valuation page 3 Section 2. The DCF model: Basic assumptions and the expected cash flows
More informationThe cost of capital. A reading prepared by Pamela Peterson Drake. 1. Introduction
The cost of capital A reading prepared by Pamela Peterson Drake O U T L I N E 1. Introduction... 1 2. Determining the proportions of each source of capital that will be raised... 3 3. Estimating the marginal
More informationValuating the levered firm. Ch. 18 Valuation and Capital Budgeting for the Levered Firm
Valuating the levered firm Ch. 18 Valuation and Capital Budgeting for the Levered Firm I. Introduction In a strict MM world, firms can analyze real investments as if they are allequityfinanced. Under
More informationMidland Energy/Sample 2. Midland Energy Resources, Inc.
Midland Energy Resources, Inc. Midland Energy Resources, Inc. is a global energy company that operates in oil and gas exploration and production (E&P), refining and marketing (R&M), and petrochemicals.
More informationVALUATION JC PENNEY (NYSE:JCP)
VALUATION JC PENNEY (NYSE:JCP) Prepared for Dr. K.C. Chen California State University, Fresno Prepared by Sicilia Sendjaja Finance 129Student Investment Funds December 15 th, 2009 California State University,
More informationThe AdjustedPresentValue Approach to Valuing Leveraged Buyouts 1)
IE Aufgabe 4 The AdjustedPresentValue Approach to Valuing Leveraged Buyouts 1) Introduction A leveraged buyout (LBO) is the acquisition by a small group of equity investors of a public or private company
More informationNIKE Case Study. Professor Corwin. An overview of the individual questions and their relation to the lecture topics is provided below.
NIKE Case Study Professor Corwin This case study includes several problems related to the valuation of Nike. We will work through these problems throughout the course to demonstrate some of the most important
More informationCorporate Finance: Final Exam
Corporate Finance: Final Exam Answer all questions and show necessary work. Please be brief. This is an open books, open notes exam. For partial credit, when discounting, please show the discount rate
More informationa) The Dividend Growth Model Approach: Recall the constant dividend growth model for the price of a rm s stock:
Cost of Capital Chapter 14 A) The Cost of Capital: Some Preliminaries: The Security market line (SML) and capital asset pricing model (CAPM) describe the relationship between systematic risk and expected
More informationE. V. Bulyatkin CAPITAL STRUCTURE
E. V. Bulyatkin Graduate Student Edinburgh University Business School CAPITAL STRUCTURE Abstract. This paper aims to analyze the current capital structure of Lufthansa in order to increase market value
More informationPractice Bulletin No. 2
Practice Bulletin No. 2 INTERNATIONAL GLOSSARY OF BUSINESS VALUATION TERMS To enhance and sustain the quality of business valuations for the benefit of the profession and its clientele, the below identified
More informationFinancial Markets and Valuation  Tutorial 6: SOLUTIONS. Capital Structure and Cost of Funds
Financial Markets and Valuation  Tutorial 6: SOLUTIONS Capital Structure and Cost of Funds (*) denotes those problems to be covered in detail during the tutorial session (*) Problem 1. (Ross, Westerfield
More informationThe Adjusted Present Value Approach to Valuing Leveraged Buyouts 1
Chapter 17 Valuation and Capital Budgeting for the Levered Firm 17A1 Appendix 17A The Adjusted Present Value Approach to Valuing Leveraged Buyouts 1 Introduction A leveraged buyout (LBO) is the acquisition
More informationCORPORATE FINANCE (28C00100)
IMPORTANT The submitted exercise answers will be accepted only for those students that have successfully registered for the course lectures. (Please check the list on the course website to make sure your
More informationThe Adjusted Present Value Approach to Valuing Leveraged Buyouts 1 Introduction
Chapter 18 Valuation and Capital Budgeting for the Levered Firm 18A1 Appendix 18A The Adjusted Present Value Approach to Valuing Leveraged Buyouts 1 Introduction A leveraged buyout (LBO) is the acquisition
More information] (3.3) ] (1 + r)t (3.4)
Present value = future value after t periods (3.1) (1 + r) t PV of perpetuity = C = cash payment (3.2) r interest rate Present value of tyear annuity = C [ 1 1 ] (3.3) r r(1 + r) t Future value of annuity
More informationDiscounted Cash Flow Valuation. Literature Review and Direction for Research Composed by Ngo Manh Duy
Discounted Cash Flow Valuation Literature Review and Direction for Research Composed by Ngo Manh Duy TABLE OF CONTENTS Acronyms DCF Valuation: definition and core theories DCF Valuation: Main Objective
More informationFINC 3630: Advanced Business Finance Additional Practice Problems
FINC 3630: Advanced Business Finance Additional Practice Problems Accounting For Financial Management 1. Calculate free cash flow for Home Depot for the fiscal yearended February 1, 2015 (the 2014 fiscal
More informationInternational Glossary of Business Valuation Terms*
40 Statement on Standards for Valuation Services No. 1 APPENDIX B International Glossary of Business Valuation Terms* To enhance and sustain the quality of business valuations for the benefit of the profession
More informationDiscounted Cash Flow Methodology. Table of Contents. Section 1 Discounted Cash Flow Overview CONFIDENTIAL. DCF Primer 5467729.doc
Table of Contents Section 1 Discounted Cash Flow Overview CONFIDENTIAL DCF Primer 5467729.doc Section 1 Discounted Cash Flow Overview The DCF approach values a business based on its future expected cash
More informationCompany Share Price Valuation using Free Cash Flow To Equity
Financial Modeling Templates Company Share Price Valuation using Free Cash Flow To Equity http://spreadsheetml.com/finance/valuation_freecashflowtoequity.shtml Copyright (c) 20092014, ConnectCode All
More informationEvaluation of Google and Apple
Xing Chen & Yuanyuan Pan FIN 5190Special Topics: Financial Modeling Prof. Michael D. Boldin Final Project Evaluation of Google and Apple Overview of project and modeling objectives The objective of
More informationDiscussion of Valuation Methods and Model Templates. May 6, 2013
Discussion of Valuation Methods and Model Templates May 6, 2013 Introduction The following presentation discusses the SPT Business Development valuation template and the key considerations related to each
More informationWorking Paper. WP No 549 March, 2004. Pablo Fernández *
CIIF Working Paper WP No 549 March, 2004 EQUIVALENCE OF TEN DIFFERENT DISCOUNTED CASH FLOW VALUATION METHODS Pablo Fernández * * Professor of Financial Management, PricewaterhouseCoopers Chair of Finance,
More information( ) ( )( ) ( ) 2 ( ) 3. n n = 100 000 1+ 0.10 = 100 000 1.331 = 133100
Mariusz Próchniak Chair of Economics II Warsaw School of Economics CAPITAL BUDGETING Managerial Economics 1 2 1 Future value (FV) r annual interest rate B the amount of money held today Interest is compounded
More informationBA 351 CORPORATE FINANCE. John R. Graham Adapted from S. Viswanathan LECTURE 10 THE ADJUSTED NET PRESENT VALUE METHOD
BA 351 CORPORATE FINANCE John R. Graham Adapted from S. Viswanathan LECTURE 10 THE ADJUSTED NET PRESENT VALUE METHOD FUQUA SCHOOL OF BUSINESS DUKE UNIVERSITY 1 THE ADJUSTED NET PRESENT VALUE METHOD COPING
More informationGoals. Stock Valuation. Dividend Discount Model Constant Dividends. Dividend Discount Model Constant Dividends
Stock Valuation Economics 71a: Spring 2007 Mayo 11 Malkiel, 5, 6 (136144), 8 Lecture notes 4.2 Goals Dividend valuation model dividend discount model Forecasting earnings, dividends, and prices Ratio
More informationDetermining the Cost of Capital for Corporate Acquisitions Howard Johnson Campbell Valuation Partners Limited
 1  Determining the Cost of Capital for Corporate Acquisitions, C.A., C.M.A., M.B.A. Overview Determining the cost of capital to use in evaluating acquisition candidates is a complex and necessarily
More informationChapter 17 Corporate Capital Structure Foundations (Sections 17.1 and 17.2. Skim section 17.3.)
Chapter 17 Corporate Capital Structure Foundations (Sections 17.1 and 17.2. Skim section 17.3.) The primary focus of the next two chapters will be to examine the debt/equity choice by firms. In particular,
More informationValuing Companies. Katharina Lewellen Finance Theory II May 5, 2003
Valuing Companies Katharina Lewellen Finance Theory II May 5, 2003 Valuing companies Familiar valuation methods Discounted Cash Flow Analysis Comparables Real Options Some new issues Do we value assets
More informationSAMPLE FACT EXAM (You must score 70% to successfully clear FACT)
SAMPLE FACT EXAM (You must score 70% to successfully clear FACT) 1. What is the present value (PV) of $100,000 received five years from now, assuming the interest rate is 8% per year? a. $600,000.00 b.
More informationAdvanced Corporate Finance Capital Structure II. Thomas J. Chemmanur Carroll School of Management Boston College
Advanced Corporate Finance Capital Structure II Thomas J. Chemmanur Carroll School of Management Boston College WHEN DOES FINANCIAL STRUCTURE MATTER? It matters when there is an unsatisfied clientele
More informationCFAspace. CFA Level II. Provided by APF. Academy of Professional Finance 专业金融学院. Equity Investments Introduction CFA Lecturer: Hillary Wang
CFAspace Provided by APF CFA Level II Equity Investments Introduction CFA Lecturer: Hillary Wang Weightings of CFA Level II exam topics Topic Area Level II Ethical and Professional Standards (total) 10
More informationExamining the Relationship between Innovation And Company Values of Apple Inc.
Examining the Relationship between Innovation And Company Values of Apple Inc. Ascariena Rafinda, and Ana Noveria Abstract The purpose of this study is to estimating the company value and performance
More informationUse the table for the questions 18 and 19 below.
Use the table for the questions 18 and 19 below. The following table summarizes prices of various defaultfree zerocoupon bonds (expressed as a percentage of face value): Maturity (years) 1 3 4 5 Price
More informationMETHODS OF VALUATION FOR MERGERS AND ACQUISITIONS
Graduate School of Business Administration University of Virginia METHODS OF VALUATION FOR MERGERS AND ACQUISITIONS This note addresses the methods used to value companies in a merger and acquisitions
More informationCHAPTER 8 STOCK VALUATION
CHAPTER 8 STOCK VALUATION Answers to Concepts Review and Critical Thinking Questions 5. The common stock probably has a higher price because the dividend can grow, whereas it is fixed on the preferred.
More informationWACC and APV. The Big Picture: Part II  Valuation
WACC and APV 1 The Big Picture: Part II  Valuation A. Valuation: Free Cash Flow and Risk April 1 April 3 Lecture: Valuation of Free Cash Flows Case: Ameritrade B. Valuation: WACC and APV April 8 April
More informationPresented by : RSM Nelson Wheeler Venue: Hong Kong Institute of CPAs, 27/F., Wu Chung House Date: 31 July CPD Series M&A Issues for Accountants
Presented by : RSM Nelson Wheeler Venue: Hong Kong Institute of CPAs, 27/F., Wu Chung House Date: 31 July 2013 CPD Series M&A Issues for Accountants Valuation 31 July 2013 Welcome and Introduction By Samuel
More informationEMBA in Management & Finance. Corporate Finance. Eric Jondeau
EMBA in Management & Finance Corporate Finance EMBA in Management & Finance Lecture 5: Capital Budgeting For the Levered Firm Prospectus Recall that there are three questions in corporate finance. The
More informationPART I  MULTIPLE CHOICE
 Corporate Law Curriculum PART I  MULTIPLE CHOICE Instructions: For each of the following questions, circle the best answer. 1. Convertible bonds are best described as a. debentures that the holder
More informationMBA (3rd Sem) 201314 MBA/29/FM302/T/ODD/1314
Full Marks : 70 MBA/29/FM302/T/ODD/1314 201314 MBA (3rd Sem) Paper Name : Corporate Finance Paper Code : FM302 Time : 3 Hours The figures in the righthand margin indicate marks. Candidates are required
More informationENTERPRISE VALUATION. Degree in Business Administration CORPORATE FINANCE. Szabolcs Sebestyén
ENTERPRISE VALUATION Szabolcs Sebestyén szabolcs.sebestyen@iscte.pt Degree in Business Administration CORPORATE FINANCE Sebestyén (ISCTEIUL) ENTERPRISE VALUATION Corporate Finance 1 / 36 Outline 1 Discounted
More informationValuation Mobile networks
ITU EXPERTLEVEL TRAINING ON NETWORK COST MODELING FOR ASIA AND PACIFIC COUNTRIES LEVEL II Valuation Mobile networks Bangkok, Thailand, 1519 November 2010 Note: The views expressed in this paper are those
More informationFinancial Statement Analysis!
Financial Statement Analysis! The raw data for investing Aswath Damodaran! 1! Questions we would like answered! Assets Liabilities What are the assets in place? How valuable are these assets? How risky
More informationValuation. The Big Picture: Part II  Valuation
Valuation The Big Picture: Part II  Valuation A. Valuation: Free Cash Flow and Risk Apr 1 Apr 3 Lecture: Valuation of Free Cash Flows Case: Ameritrade B. Valuation: WACC and APV Apr 8 Apr 10 Apr 15 Lecture:
More informationFundamentals Level Skills Module, Paper F9
Answers Fundamentals Level Skills Module, Paper F9 Financial Management June 2008 Answers 1 (a) Calculation of weighted average cost of capital (WACC) Cost of equity Cost of equity using capital asset
More informationFundamentals Level Skills Module, Paper F9. Section A. Monetary value of return = $3 10 x 1 197 = $3 71 Current share price = $3 71 $0 21 = $3 50
Answers Fundamentals Level Skills Module, Paper F9 Financial Management December 2014 Answers Section A 1 A Monetary value of return = $3 10 x 1 197 = $3 71 Current share price = $3 71 $0 21 = $3 50 2
More informationDUKE UNIVERSITY Fuqua School of Business. FINANCE 351  CORPORATE FINANCE Problem Set #4 Prof. Simon Gervais Fall 2011 Term 2.
DUK UNIRSITY Fuqua School of Business FINANC 351  CORPORAT FINANC Problem Set #4 Prof. Simon Gervais Fall 2011 Term 2 Questions 1. Suppose the corporate tax rate is 40%. Consider a firm that earns $1,000
More informationCash Flow. Summary. Cash Flow. Louise Söderberg, 20101015
Cash Flow Louise Söderberg, 20101015 Summary The statement of cash flow reports the cash generated and used during the time interval specified in its headings. A cash flow analysis is a method of checking
More informationHomework Solutions  Lecture 2
Homework Solutions  Lecture 2 1. The value of the S&P 500 index is 1286.12 and the treasury rate is 3.43%. In a typical year, stock repurchases increase the average payout ratio on S&P 500 stocks to over
More informationModels of Equity Valuation
CHAPTER 3 Equity Valuation 3. VALUATION BY COMPARABLES Fundamental Stoc Analysis: Models of Equity Valuation Basic Types of Models Balance Sheet Models Dividend Discount Models Price/Earnings Ratios Estimating
More informationFN2 Ron Muller 200708 MODULE 4: CAPITAL STRUCTURE QUESTION 1
MODULE 4: CAPITAL STRUCTURE QUESTION 1 Gadget Corp. manufactures gadgets. The average selling price of this finished product is $200 per unit. The variable cost for these units is $125. Gadget Corp. incurs
More informationmba morten beyer & agnew
Business Valuation: How to Make the Most of Your Business Pooja Gardemal, CPA/ABV Vice President Business Valuation & Economic Analysis 1 About is a global consulting firm with offices in the U.S. and
More informationIFRS Financial Ratios.
100 IFRS Financial Ratios Author s preface Dear readers, in order to make solid investments, investors compare companies within their peer group. For this purpose, key ratios such as EBIT, working capital
More informationNORTHWESTERN UNIVERSITY J.L. KELLOGG GRADUATE SCHOOL OF MANAGEMENT
NORTHWESTERN UNIVERSITY J.L. KELLOGG GRADUATE SCHOOL OF MANAGEMENT Tim Thompson Finance D42 Fall, 1997 Teaching Note: Valuation Using the Adjusted Present Value (APV) Method vs. Adjusted Discount Rate
More informationNon GAAP to GAAP Reconciliation November 2014
Non GAAP to GAAP Reconciliation November 2014 LTM September 30, 2014 Adjusted EBITDA Supplementary Information Non GAAP Earnings Before Interest, Taxes, Depreciation & Amortization LTM 9/30/2014 ($ in
More informationU + PV(Interest Tax Shield)
CHAPTER 15 Debt and Taxes Chapter Synopsis 15.1 The Interest Tax Deduction A CCorporation pays taxes on proits ater interest payments are deducted, but it pays dividends rom atertax net income. Thus,
More informationA Basic Introduction to the Methodology Used to Determine a Discount Rate
A Basic Introduction to the Methodology Used to Determine a Discount Rate By Dubravka Tosic, Ph.D. The term discount rate is one of the most fundamental, widely used terms in finance and economics. Whether
More informationPre and Post Tax Discount Rates and Cash Flows A Technical Note
Pre and Post Tax Discount Rates and Cash Flows A Technical Note Wayne Lonergan When discounting pre tax cash flows it is often assumed that discounting pre tax cash flows at pre tax discount rates will
More informationCash Flow Analysis Venture Business Perspective
Cash Flow Analysis Venture Business Perspective Cash Flow (CF) Analysis What is CF and how is determined? CF Free CF Managing CF Cash Conversion Cyclical CF Breakeven Valuing venture businesses based
More information