lec18-ReviewForTest2-3pp

lec18-ReviewForTest2-3pp - Fin406 – Spring 2010 Smeal...

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Unformatted text preview: Fin406 – Spring 2010 Smeal College of Business Penn State University 3/22/2010 ©2010 JingZhi Huang 1 Lecture 18: Review for Test 2 Fin 406 - Spring 2010 Professor Jingzhi Huang Smeal College of Business Penn State University Copyright © 2010 JZH Main Q: How to Value a Stock The top-down approach and the EmIC framework Fundamental Analysis Technical Analysis Company Industry Economy Market •Strategy •Products •Valuation •GDP •Employment •Inflation •Stock •Bonds •Life Cycle •Cyclical? 2 Balance sheet models Book value; Liquidation value; Replacement cost The discounted cash flow (DCF) approach Dividend discount models; Free cash flow models The relative valuation approach The option pricing approach Technical Analysis Quantitative Analysis •Valuation •Financial •Inflation •FX •Competition I. DCF: Main Assumptions Every asset has an intrinsic value that can be estimated, based upon its characteristics in terms of cash flows, growth (in cash flows) and risk characteristics (e.g. beta) 3 When one uses discounted cash flow valuation, one assumes that market prices can deviate from intrinsic values but prices will revert back to intrinsic value sooner or later. Thus it’s important to have a long time horizon here Fin406 – Spring 2010 Smeal College of Business Penn State University 3/22/2010 ©2010 JingZhi Huang 2 Pros and Cons of DCF Suitable for investors with a long investment horizon See “Buy American. I Am” by Warren Buffett, New York Times, 10/16/08....
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This note was uploaded on 04/06/2010 for the course FIN 100 taught by Professor Staff during the Fall '08 term at Penn State.

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lec18-ReviewForTest2-3pp - Fin406 – Spring 2010 Smeal...

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