Was zero as many analysts do the terminal value would

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was zero, as many analysts do, the terminal value would have been: FCFE 6 = 231.57 - 13.85(1-.376) = 222.93 Sfr Terminal Value per Share = 222.93/(.0847 -.05) = 4986 Sfr Value= =$74.04 +$78.76 +$83.78 +$89.12 +$94.7 + 4986/(1.0847) 5 = 3740.91 Sfr
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Aswath Damodaran 13 Terminal Value= 173.93/(.0847-.05) = 3890 Cashflow to Equity Net Income 108.88 - (Cap Ex - Depr) (1- DR) 25.19 - Change in WC (!-DR) 4.41 = FCFE 79.28 Expected Growth Retention Ratio * Return on Equity =.651*.2363=15.38% 80.31 Sfr 92.67 Sfr 106.92 Sfr 123.37 Sfr 142.35 Sfr Forever Firm is in stable growth: g=5%; Beta=0.85; Cap Ex/Deprec=150% Debt ratio stays 37.6% ........ Cost of Equity 4%+0.85(5.26%)=8.47% Financing Weights Debt Ratio = 37.6% Discount at Cost of Equity Value of Equity per Share = 3011 Sfr Riskfree Rate : Swiss franc rate = 4% + Beta 0.85 X Risk Premium 4% + 1.26% Bottom-up beta for food= 0.79 Market D/E=11% Base Equity Premium: 4% Country Risk Premium:1.26% A VALUATION OF NESTLE (PER SHARE
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Aswath Damodaran 14 The Effects of New Information on Value n No valuation is timeless. Each of the inputs to the model are susceptible to change as new information comes out about the firm, its competitors and the overall economy. Market Wide Information Interest Rates Risk Premiums Economic Growth Industry Wide Information Changes in laws and regulations Changes in technology Firm Specific Information New Earnings Reports Changes in the Fundamentals (Risk and Return characteristics)
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Aswath Damodaran 15 Nestle: Effects of an Earnings Announcement n Assume that Nestle makes an earnings announcement which includes two pieces of news: The earnings per share come in lower than expected. The base year earnings per share will be 105.5 Sfr instead of 108.8 Sfr. Increased competition in its markets is putting downward pressure on the net profit margin. The after-tax margin, which was 5.98% in the previous analysis, is expected to shrink to 5.79%. n There are two effects on value: The drop in earnings will make the projected earnings and cash flows lower, even if the growth rate remains the same The drop in net margin will make the return on equity lower (assuming turnover ratios remain unchanged). This will reduce expected growth.
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Aswath Damodaran 16 Terminal Value= 164.84/(.0847-.05) = 3687 Cashflow to Equity Net Income 105.50 - (Cap Ex - Depr) (1- DR) 25.19 - Change in WC (!-DR) 4.41 = FCFE 75.90 Expected Growth Retention Ratio * Return on Equity = .651*.2323 =15.12% 76.48 Sfr 88.04 Sfr 101.35 Sfr 116.68 Sfr 134.32 Sfr Forever Firm is in stable growth: g=5%; Beta=0.85; Cap Ex/Deprec=150% Debt ratio stays 37.6% ........ Cost of Equity 4%+0.85(5.26%)=8.47% Financing Weights Debt Ratio = 37.6% Discount at Cost of Equity Value of Equity per Share = 2854 Sfr Riskfree Rate : Swiss franc rate = 4% + Beta 0.85 X Risk Premium 4% + 1.26% Bottom-up beta for food= 0.79 Market D/E=11% Base Equity Premium: 4% Country Risk Premium:1.26% A RE-VALUATION OF NESTLE (PER SHARE
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Aswath Damodaran 17 Tsingtao Breweries: Rationale for Using Model n Why three stage? Tsingtao is a small firm serving a huge and growing market – China, in particular, and the rest of Asia, in general. The
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