Section _3 Valuation

# Section _3 Valuation - AEM 3240 Section #3 Stock Valuation...

This preview shows pages 1–11. Sign up to view the full content.

AEM 3240 Section #3 Stock Valuation September 14th, 2010 Copyright 2010 by Rich Curtis

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
What is the value of any asset derived from?
Common Stock Valuation 1. Based on Discounted Cash Flows a. What cash flows? b. What discount rate? 2. Based on Multiples of Key Financial Variables For Comparable Companies a. Based on a multiple of earnings b. Based on a multiple of EBITDA c. Based on a multiple of book value d. Based on a multiple of sales e. Based on a multiple of “free cash flow” 3. Based on Option Theory 4. Based on Earnings and Estimated Growth

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
5. Based on the Breakup Value of the Firm 6. Based on the Replacement Value of the Firm’s Assets 7. Based on the Estimated Value of the Firm After Financial Restructuring 8. Based on “Castles In The Air” … The Greater Fool Theory 9. Industry-Specific Methods a. Based on the “number of subscribers” or “customers” b. Based on the population in the selling area (price per “pop”) c. Based on number of “eyeballs” or “clicks” d. Etc.
1. Common Stock Value As Estimated By Dividend Discount Models (See “Stock Valuation” Notes, pp. 15-16) P o = D 1 1+k e + D 2 1+k e Λ Ν Μ Ξ Π Ο 2 + D 3 1+k e Λ Ν Μ Ξ Π Ο 3 + . ..

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
If those dividends growth at a constant rate g, then P o = D 1 1+k e + D 2 1+k e Λ Ν Μ Ξ Π Ο 2 + D 3 1+k e Λ Ν Μ Ξ Π Ο 3 + . .. = D 1 1+k e + D 1 1+g Λ Ν Μ Ξ Π Ο 1+k e Λ Ν Μ Ξ Π Ο 2 + D 1 1+g Λ Ν Μ Ξ Π Ο 2 1+k e Λ Ν Μ Ξ Π Ο 3 + . .. and if k e > g, P o = D 1 k e g
Example : MRK: If D 1 = \$1.52 = 4(\$.38), k e = .1061, and g = .0549, then P o = D 1 k e g = \$1.52 .1061 - .0549 = \$29.6875 From Bloomberg

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
CAPM: E[R j ] = R f + β j (E[R m ]-R f ) 10-Yr. T-Bond Assumed Key Statistics or Bloomberg E[R j ] = R f + β j (E[R m ]-R f ) = R f + (.916)(E[R m ]-R f ) Raw Beta = .874 Adj Beta = .916
2. Common Stock Price Estimates Based On Comparable Firms (See “Stock Valuation” Notes, pp. 35-45) One problem with DCF models is that k e and g can be difficult to estimate, and P 0 is very sensitive to these variables. It would therefore be nice to have some other valuation methods which use variables which are easier to estimate.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Analogy : My height is 69 inches. What’s my weight? Some data (from guys):
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 09/24/2011 for the course HADM 2225 taught by Professor Wellman, j during the Spring '08 term at Cornell University (Engineering School).

### Page1 / 38

Section _3 Valuation - AEM 3240 Section #3 Stock Valuation...

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online