Section__3_SP_09_Val - AEM 3240 Section #3 Stock Valuation...

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AEM 3240 Section #3 Stock Valuation February 4th, 2009 Copyright 2009 by Rich Curtis
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What is the value of any asset derived from?
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Common Stock Valuation 1. Based on Dividend Discount Models 2. Based on Multiples of Key Financial Variables For Comparable Companies a. Based on a multiple of earnings b. Based on a multiple of EBITDA c. Based on a multiple of book value d. Based on a multiple of sales e. Based on a multiple of “free cash flow” 3. Based on Earnings and Estimated Growth 4. Based on Discounted Cash Flows a. What cash flows? b. What discount rate?
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5. Based on the Breakup Value of the Firm 6. Based on the Replacement Value of the Firm’s Assets 7. Based on the Estimated Value of the Firm After Financial Restructuring 8. Based on “Castles In The Air” … The Greater Fool Theory 9. Industry-Specific Methods a. Based on the “number of subscribers” or “customers” b. Based on the population in the selling area (price per “pop”) c. Based on number of “eyeballs” or “clicks” d. Etc.
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1. Common Stock Value As Estimated By Dividend Discount Models (See “Stock Valuation” Notes, pp. 15-16) P o = D 1 1+k e + D 2 1+k e 2 + D 3 1+k e 3 + . ..
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If those dividends growth at a constant rate g, then P o = D 1 1+k e + D 2 1+k e 2 + D 3 1+k e 3 + . .. = D 1 1+k e + D 1 1+g 1+k e 2 + D 1 1+g 2 1+k e 3 + . ..
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Section__3_SP_09_Val - AEM 3240 Section #3 Stock Valuation...

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