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Unformatted text preview: Equity Valuation Enterprise Value • The Enterprise Value of the firm is the sum of its market value of equity and its market value of net debt EV= E+D-Cush • Cash can be thought of as negative debt. • Hence, we remove it from the estimate of the value of the firm as an ongoing enterprise. • Some valuation approaches focus on the enterprise as a whole, while others focus 0 0 equity. Measures of Value • Book Value of Equity The net worth of common equity according to a fum's balance sheet Book Value of Equity =Assets - Liabilities Why does a stock have value? • A share of equity represents a claim on the current and future free cash flows of the firm. • A share of equity has value because of the expectation of an eventual payout of these free cash flows. Payout can take the following forms:- Dividmd. Can be lpCcial distributions OJ' regularoogoing pa)'Ulents.- Sharr Repurchlld Often at a slight premium over aam::ot rnasUt value....
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This note was uploaded on 09/07/2011 for the course FINANCE 320 taught by Professor Sapp during the Fall '10 term at Iowa State.
- Fall '10