Chapter 10 - Corporate Value and Value-Based Management

Chapter 10 - Corporate Value and Value-Based Management -...

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Brigham and Daves (2004) , Intermediate Financial Management Chapter 10 - Corporate Value and Value-Based Management Overview of corporate valuation o Managers should evaluate the effects of alternative strategies on the value of the firm → forecasting financial statements under alternative strategies, finding the PV and then choosing the one with the maximum value o What value should be used to discount cash flows? o For managers of start-ups → decision to pay dividends in the foreseeable future is not likely → dividend growth model is not useful for valuing most start-ups o Also for established companies → as long as there are profitable opportunities and acquisitions, the initiation of dividends will be postponed o Dividend growth model is of limited use for internal management purposes → if the firm value depends on many cash flows from different assets → managers need a way to measure the effects of their decisions on corporate value o Corporate valuation model does not depend on dividends and it can be applied to subunits and divisions as well as to the entire firm The corporate valuation model o Corporate assets are of two types: operating (further subdivided in assets-in-place and growth options) and non-operating o Assets-in-place – tangible assets such as buildings, land and machinery plus intangible assets such as patents, customer lists reputation and know-how o Assets produce current sales and cash flows and also provide opportunities for new investments that will produce additional cash flows o Most companies also own some non-operating assets in form of marketable securities
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This note was uploaded on 11/16/2009 for the course F 3033 taught by Professor Hh during the Spring '09 term at Maastricht.

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Chapter 10 - Corporate Value and Value-Based Management -...

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