16-1 Consider a firm with invetments of $1,200 million
in Non-Cash Assets & $200 million in cash.
For simplicity, let us assume the following:
Non-Cash Assets have a beta of 1 and are expected to earn
$120 million in Net Income each year in perpetuity
and
ESTIMATING
GROWTH
Week 07
(Chapter 11, AD)
VIJAYA LAKSHMAN MUDDU, PACE
PACE UNIVERSITY
Agenda: estimating Growth
Historical growth rate
Analyst-predicted growth rate
Fundamental Growth Rate
Valuation of the Firm
2
Importance of Growth
Value of a firm come
FREE CASH FLOW TO EQUITY (FCFE)
Week 09 (Chapter 14, AD)
Discounted Cash Flow Valuation:
Beyond Inputs: Choosing & Using the Right Model
Agenda: FCFE Model
Free Cash Flow to Equity Model (FCFE)
Comparing Dividends to Free Cash Flow to Equity.
Why firms pa
FREE CASH FLOW TO FIRM (FCFF)
Week 09 (Chapter 15, AD)
Agenda: FCFF
Free Cash Flow to Firm (FCFF) method
APV method
Valuation of the Firm
2
FCFF
FCFF model ~ unlike FCFE or DDM~ values firm rather than Equity.
FCFF: Value of Firm is obtained by discounti
Fundamental Principles of
Relative Valuation
Week 12
Chapter 17 (AD)
VIJAYA LAKSHMAN MUDDU
Agenda
Use of Relative Valuation (RV)
Standardized Values & Multiples
4 basic steps to using Multiples.
Valuation of the Firm
2
Essence of Relative Valuation?
In Re
ESTIMATING EQUITY VALUE PER
SHARE
Week 09
(Chapter 16, AD)
VIJAYA LAKSHMAN MUDDU
PACE UNIVERSITY
Agenda:
Estimating equity Value per Share
Non-Operating Assets
Firm Value & equity Value
Management & Employee Options
Value per share when voting rights v
Book Value Multiples
Chapter 19 (AD)
VIJAYA LAKSHMAN MUDDU,
PACE University
Price-Book Value Ratio: Definition
Price/ Book Value (P-BV) ratio: an Equity multiple
ratio of Market Value (MV) of Equity to Book Value (BV) of Equity,
measure of shareholders
Revenue Multiples &
Sector-specific Multiples
Week 13
Chapter 20 (AD)
VIJAYA LAKSHMAN MUDDU
PACE University
Revenue Multiples
Earnings & Book Value multiples are intuitively
appealing & widely used.
For young firms with negative Earnings Multiples of
Rev
ESTIMATING
TERMINAL VALUE
Week 06
(Chapter 12, AD)
VIJAYA LAKSHMAN MUDDU, PACE
PACE UNIVERSITY
Agenda
Closure to Valuation
Going concern approach
Liquidation approach
Valuation of the Firm
2
Getting Closure in Valuation
A publicly traded firm potentiall
DIVIDEND DISCOUNT MODEL (DDM)
Week 08
(Chapter 13, AD)
VIJAYA LAKSHMAN MUDDU
PACE UNIVERSITY
Agenda: Dividend Discount Model
Dividend Discount Model (DDM) ~ general version
Gordon Growth Model (GGM)
Dividend Discount Model ~ specific versions
2-stage DDM
20.1 Estimating Price-to-Sales Ratio for a High-Growth firm in a 2-stage Model:
Data given:
1st 5 Y After 5 Y
Growth 'g'
20%
8%
CoE 11.50%
RfR
6%
POR
20%
50%
NPM
10%
MRP
5.50%
b
1
1st 5 Y After 5 Y Total
P/S Growt
0.1253
P/S TV
2.2277
P/S
2.3530
Net Mar
15-2 Union Pacific Railroad reported a Net Income of $770 million in 1993,
after interest expenses of $320 million.
Corporate tax rate was 36%.
It reported depreciation of $960 million.in that year.
and capital spending was $1.2 billion.
The firm also had
Valuation of the Firm
Chapter 11
Growth
11-2 BIC Corp reported a Return on Equity (RoE) of 20% and
paid out 37% of its Earnings as Dividends in the most recent year.
a) Assuming that these fundamentals dont change,
estimate the expected growth rate in EPS
Valuation of the Firm
Chapter 12
Terminal Value
Assignment 07B
1)
a)
b)
a)
b)
Q1
Score
out of
Q2
Q3
Q4
30
30
30
30
Total
0
120
0
3
Lamps Galore Inc manufactures table lamps and earns an
after-tax return on capital of 15% on its current capital invested ($
VALUATION OF THE FIRM
RELATIVE VALUATION & EARNINGS MULTIPLES
CHAPTERS 17 & 18 (DAMODARAN)
ASSIGNMENT 11
Q1
Score
out of
Q2
0
25
Total
0
30
Name:
0
55
18-2 On March 11, 1994, NYSE was trading at 16.9 times Earnings and the
average Dividend Yield across st
a)
Assuming that the firm's Return on Capital (RoC) and Reinvestment Rate
remain unchanged, estimate the expected growth rate in Operating Income next year.
After Tax Operating Income
Capital Invested
Net Capital Exp
Increase in Working Capital
RoC
Reinve
Earnings Multiples
Chapter 18 (AD)
VIJAYA LAKSHMAN MUDDU
PACE UNIVERSITY
Agenda
Earnings Multiples
Price-Earnings Ratio(P/E)
PEG Ratio
EV/EBITDA Ratio
Valuation of the Firm
2
Earnings Multiples
Price-Earnings (PE) Multiple:
Most commonly used measures