TheTreasuryAcademy2014
1
THE DARK SIDE OF VALUATION:
VALUING DIFFICULT-TO-VALUE
COMPANIES
DIV:Chap21ValuingFinancialServiceFirms
DIV:Chap22ValuingFirmswithNegativeEarnings
DIV:Chap23ValuingYoungorStartupFirms
DIV:Chap30ValuingEquityinDistressedFirms
Gener
Damodaran on Valuation:
Chapter 8
Relative Valuation: Equity
Multiples
Presentation Slides
Copyright
Copyright 2011
2011 - The
The Resource
Resource Alliance
Alliance - All
All Rights
Rights Reserved
Reserved
11
Overview of Chapter Topics
Definitions
of E
PROBLEM 8-4
Given
Per Square Foot
A
Building size (Sq. ft.)
Rent
Maintenance (fixed cost)
Net Operating Income
% Change in NOI
Selling Price Information
Sales multiple for NOI/sq. ft.
Capitalization rate (1/Sales multiple)
Estimated property value
$
100 $
1.Case Instructions
Analyzing Historical Risk vs. Return for a Company.
Choose a company that you are using in the investment challenge and complete the following steps.
Follow the 6 steps below. Submit your answers on these sheets to the Drop Box
Step 1:
1)
2)
a)
Suppose the average return on an asset is 12.3 percent and the standard deviation is 20.8 percent. Furth
NORMDIST function in Excel to determine the probability that in any given year you will lose mone
and round your answer to 2 decimal places.
Grade base is 7; all the extra credit is on the last problem.
USE THE PREVIOUS INFO FROM THE Xcorp PROBLEM.
ASSUME ALSO THAT PROJECT B IS CHOSEN
ASSUME NOW THAT THE ACTUAL CORPORATE and PROJECT BALANCE SHEETS APPEAR AS FOLLOWS:
Xcorp BEFORE INVESTMENT
Ass
Introduction:
Amazon.com Inc., was incorporated in the year 1994 in Washington and they were
reincorporated in 1996 in Delaware and headquartered in Seattle Washington. Jeff Bezos was the
founder of Amazon.com. Companys IPO was on 15th May 1997. Amazon ma
1
What is the total percentage return for an investor who purchased a stock for $5.73, received $3.61 in d
and sold the stock for $9.44?
Answer:
Buy price
$5.73
Dividend payment
$3.61
Selling price
$9.44
Total percentage return
127.7487%
2
A stock had the
Your classmate said that "dual effect" indicates that for all transactions, one account will increase
and another account will decrease. Is your classmate correct? Explain. Please give an example of
a dual effect transaction.
Answer:
Yes, dual effect will
Running Head: PROBLEM INSIGHT AND RECOMMENDATIONS OF APPLE INC.
Assignment Title
Student Name
Course Name
Instructor Name
Date
1
PROBLEM INSIGHT AND RECOMMENDATIONS OF APPLE INC.
2
Apple Inc.
Insight about Apples Product Shortage and Pricing Problems:
App
Damodaran on Valuation:
Chapter 7
Relative Valuation: First
Principles
Presentation Slides
Copyright
Copyright 2011
2011 - The
The Resource
Resource Alliance
Alliance - All
All Rights
Rights Reserved
Reserved
11
Overview of Chapter Topics
What
is relative
Damodaran on Valuation:
Chapter 9
Relative Valuation: Value
Multiples
Presentation Slides
Copyright
Copyright 2011
2011 - The
The Resource
Resource Alliance
Alliance - All
All Rights
Rights Reserved
Reserved
11
Overview of Chapter Topics
Definitions
of Va
The Gersin Gear Company is considering going public and is trying to determine its value based on its future div
current EPS is $7.75, and over the next 5 years they anticipate a payout ratio of 10% and ROE of 20%. During th
their beta is estimated at 1.2
Please answer each of the following questions on an Excel spreadsheet. Each question should be on a
separate tab and be sure to document all your work and calculations. Clearly identify the final answers
by highlighting those cells in yellow.
1. The Gersi
1. Roentgen Company has the following capital structure.
Bonds with face amount $40 million, coupon 7%, selling at par,
Bonds with face value $50 million, coupon 8%, 10 years to maturity, selling at 106,
6 million shares of stock, priced at $55 per share,
1 a)
b)
Current stock price
Current dividend
$24.95 4.00PM EST February 6th 2014.
$0.76
2
a)
b)
Number of shares outstand
Payout ratio
109,000,000
58.00%
Expected growth rate for ne
8.48%
3
General Electric Company (GE)
-NYSE
24.95 0.43(1.75%) Feb 6, 4:00
Solution
A)
In order to analyse whether to choose leasing or purchasing, first NAL has to be determined.
Given data:
Initial Investment
Lease Rental
(1-4 Years)
Bank Interest rate is used as Discount rate
Tax Rate
=
4,200,000.00
1,200,000.00
9%
28%
Cash O
PROBLEM 2
Californian start-up LDM considers installing on campus of a well known university in Maryland a messaging
social networks. The management anticipates that new system will have the first year revenues of $400,000 wit
revenues.
The project requir
Your name goes here
1. Current Ratio
2. Acid Test
3. Inventory Turns
4. Days Sales Outstanding
5. Debt Ratio
6. Times Interest Earned
7. Profit Margin
8. Return on Assets
9. P/E (ttm) March 7 2014
10. Market to Book
11. pps 7 March 14
12. Mkt Cap (in $mil
Consolidated Workpaper, Partially Owned Subsidiary, Cost Method:
Place Company purchased 92% of the common stock of Shaw, Inc. on January 1, 2010, for $400,000. Trial balanc
companies were:
Place
$80,350
$200,000
$70,000
$400,000
$300,000
$35,000
$240,000
An investment project has annual cash inflows of $4,300, $4,000, $5,200, and $4,400, and a discount rate of 13 percent.
1) What is the discounted payback period for these cash flows if the inital cost is $5,800?
2) What is the discounted payback period fo
Bond
Par value
Coupon
YTM
Market value
Preferred stock
Dividend yield
Par value
Number of shares
Price per share
Market value
Common stock
Number of shares
Price per share
Market value
$1,000
6%
4%
$10,000,000
3%
$100
100,000
$70
$7,000,000
100,000
$230
$
Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices. The
process requires new machinery that would cost $1,545,824. have a life of five years, and would produce the cash
flows shown in the following tabl