BUSI 408 April 20

# BUSI 408 April 20 - Step 4 Add terminal value—value of...

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BUSI 408 April 20 15:24 We encounter valuation in many situations Leveraged Bu-outs Sell-offs, spin-offs, divestitures Initial public offerings Investors buying a minority interest in company  Valuation Techniques: Discounted Cash Flow; Relative valuation approaches;  Break-up value  DCF approach Dividend Discount Model—Dividend does not necessarily reflect earnings of the  company Discounted Free Cash Flow(DFCF)—Direct Equity Approach FREE CASH FLOW TO EQUITY HOLDER= Net Income+ Non-cash Expense- Cap. Exp. –Increase in WC- Prin. Payments Problem: computing net income/ interest expense is difficult  DFCFF  step 1: Discounted Rate WACC (kc) Step 2: Annual Cash Flows FAFF=EBIT*(1-TAX RATE) + Non-cash Expenses – Capital Expenditures –  Net Working Capital Change Step 3: Calculate PVs

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Unformatted text preview: Step 4: Add terminal value—value of FCFs for 6,7,8,9 years TV=FCF6/(K-g) Value(firm)=FCF/(1+Kc)+FCF/(1+Kc)^2+…FCF/(1_Kc)^5+[FCF6/(f-g)]/ (1+kc)^ 5 Step 5: Subtract Debt Step 6: Final step—add value of any redundant assets Relative Valuation: Capital Earnings Approach Value of equity=”price/earning multiple” * expected earnings “P/E multiple” related to growth and risk of underlying cash flows for firm higher risky—multiple is lower higher growth rate—multiple is higher look at the P/E multiple in the industry Other Relative Value Approaches Enterprise Value(EV)/EBITDA approach EV0 = (EV/ EBITDA multiple) * EBITDA SOLVE FOR MV equity EV=MV equity- cash +MV devt + Mvpref + minority interests Comparable transactions Break-Up Value Approach 15:24 15:24...
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## This note was uploaded on 05/10/2011 for the course BUSI 408 taught by Professor Zeighamkhokher during the Spring '11 term at University of North Carolina School of the Arts.

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BUSI 408 April 20 - Step 4 Add terminal value—value of...

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