Day 8 Valuing Acquisitions

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

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Unformatted text preview: 173A – Brigham 26 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 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! Reminder: FCF NOPAT – Net Investment in Operating Capital EQUALS NOPAT + Depreciaton – Gross Investment in Operating Capital WHERE Gross Investment = Net Investment + Depreciation 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 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 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 Horizon Value All methodologies assume FCF to grow at...
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This note was uploaded on 09/08/2010 for the course BUS 173A at San Jose State.

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

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