Session 8 - Class Notes - information and valuation (1)

Session 8 - Class Notes - information and valuation (1) -...

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Session 8:  Accounting Information  Session 8:  Accounting Information  and Valuation Models and Valuation Models Hye Sun Chang ACCY 303  
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Learning Objectives Learning Objectives 1. Describe the basic steps in corporate valuation  using  free cash flows  and  abnormal earnings 2. Explain what  an earnings multiple  is and what  factors contribute to variation in  price-earnings  multiples 3. Describe the abnormal earnings approach to  valuation and how it is applied
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The Value of An Asset The Value of An Asset An asset will generate net cash flows of $10 million  per year for the next three years.   • How much is the asset worth? • What additional information do we need in order  to perform a valuation? 
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Corporate Valuation: Overview Corporate Valuation: Overview Step 1: Step 2: Step 3: Forecast future amounts of the  financial attribute  that ultimately determines how much a company is worth. Determine the  risk  or  uncertainty  associated with the forecasted future amounts. Determine the  discounted present value  of the expected future amounts using a discount rate that reflects the risk from Step 2. There are three steps involved in valuing a company: • Free cash flows • Accounting earnings • Balance sheet book values
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Corporate Valuation:  Corporate Valuation:  Discounted Free Cash Flow Approach Discounted Free Cash Flow Approach
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Corporate Valuation: Corporate Valuation: DCF illustration DCF illustration
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Corporate Valuation: Corporate Valuation: DCF illustration DCF illustration Estimated DCF value per share
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Earnings or Cash Flow? Earnings or Cash Flow?
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This note was uploaded on 11/08/2011 for the course ACCY 303 taught by Professor Staff during the Spring '08 term at University of Illinois, Urbana Champaign.

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Session 8 - Class Notes - information and valuation (1) -...

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