valquiz3review2.pdf - QUIZ 3 REVIEW SESSION Aswath Damodaran This quiz will cover RelaEve ValuaEon DeniEonal consistency checks DistribuEonal

valquiz3review2.pdf - QUIZ 3 REVIEW SESSION Aswath...

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QUIZ 3: REVIEW SESSION Aswath Damodaran
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2 This quiz will cover… ¨ RelaEve ValuaEon ¤ DefiniEonal consistency checks ¤ DistribuEonal characterisEcs ¤ Drivers of mulEples ¤ ApplicaEon tweaks ¨ Private company valuaEon ¤ Discount rate adjustments ¤ Cash flow adjustments ¤ Post-valuaEon adjustments
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3 MulEples: The variaEons Numerator = What you are paying for the asset Denominator = What you are getting in return Market value of equity Market value for the firm Firm value = Market value of equity + Market value of debt Market value of operating assets of firm Enterprise value (EV) = Market value of equity + Market value of debt - Cash Revenues a. Accounting revenues b. Drivers - # Customers - # Subscribers = # units Earnings a. To Equity investors - Net Income - Earnings per share b. To Firm - Operating income (EBIT) Book Value a. Equity = BV of equity b. Firm = BV of debt + BV of equity c. Invested Capital = BV of equity + BV of debt - Cash Multiple = Cash flow a. To Equity - Net Income + Depreciation - Free CF to Equity b. To Firm - EBIT + DA (EBITDA) - Free CF to Firm
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4 Example: Spring 2009 (Problem 1)You have been asked to assess the relaEve valuaEons of four companies,with significant cross holdings. You have been provided with the followinginformaEon on the companies:The accounEng numbers (including debt) come from the firm’s consolidatedfinancial statements, and you can assume that both minority holdings andminority interests are in market value terms. Based on the EV/EBITDA raEo,which of these firms is the cheapest on a consolidated basis, assuming thatthey are equivalent on risk and growth characterisEcs?
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5 SoluEon Company B is the cheapest company. Since EBITDA does not reflect income from minority holdings, subtract minority holdings . Since EBITDA reflects 100% of consolidated subsidiary’s income, add minority interests .
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  • Spring '17
  • Market Value, Privately held company, Public company

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