Day 8 Valuing Acquisitions

Day 8 Valuing Acquisitions - 173A Brigham 26 We valued the...

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173A – Brigham 26
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We valued the equity  before… why a different  method? Value of operations (from Day 7)  considers cash flows to ALL capital and is  also known as Free Cash Flow to Firm  (FCFF) Free Cash Flow to Equity (FCFE)  considers cash flows to equity holders Adjusted Present Value (APV) separates  operating cash flows and financing cash  flows
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Reminder FCFF: FCF = NOPAT – Net Investment in  Operating Capital FCFE = FCF – Interest expense + Interest  Tax Shield + Net Change in Debt APV = FCF + Interest Tax Shield When Using Income Statement and  Balance Sheet forecasts this results in  use of slightly different formats!
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Reminder: FCF NOPAT – Net Investment in Operating  Capital  EQUALS NOPAT + Depreciaton – Gross  Investment in Operating Capital WHERE Gross Investment = Net Investment +  Depreciation
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Estimating Future Cash  Flows: Financials Cash Flows To Equity To Firm Revenue Minus COGS Minus OPEX Minus Depreciation/Amortization Minus Interest(debt service) Minus Tax Plus Depreciation/Amortization Minus Required Equity Retention for Growth Revenue Minus COGS Minus OPEX Minus Depreciation/Amortization Minus Tax Plus Depreciation/Amortization Minus Gross Retention for Growth
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APV Concept APV separates operating cash flows and  financing cash flows… Value of Operations = Unlevered Value Of  Operations + Value of Interest Tax Shield Value of Equity here  is similar to FCFF Value of Equity = Unlevered VOPS + Non  Operating Assets –Value of Debt
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Estimating Cash Flows:  APV Revenue Minus COGS Minus OPEX Minus Depreciation/Amortization Minus Tax Plus Depreciation/Amortization Minus Gross Retention for Growth Plus Interest Tax Shield
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Horizon Value
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