FINM7044 Applied Valuation
Semester 2, 2016
Instructor: Xianming Zhou
E-mail: [email protected]
Consultation hours: Monday 2pm-5pm
The course web content has not been updated;
Please follow course information posted on wattle!
Course Introduction 1

Introduction to Valuation
Concept of valuation
Valuation involves establishing what an asset is
fundamentally worth
To produce estimates of unobservable true (or fair) values
To provide essential knowledge for prospective sellers or buyers
Different

Valuing a Private Firm
Private firms relative to publicly traded firms
Less information available
Looser accounting standards
Higher risk
Higher illiquidity
The owner can be the manager (when unincorporated)
Can standard valuation methods be used?

Basic Financial Statements
The balance sheet, which summarises what a firm owns
and owes at a point in time.
The income statement, which reports on how much a
firm earned in the period of analysis.
The statement of cash flows, which reports on cash
inf

Cost of Capital: Concept
Cost of capital, required return, discount rate
We need to earn at least the required return to compensate
our investors for the financing they have provided.
From an investors point of view, it is the required return.
The return

Risk and Return
One-period return
Pt-1
Dt , Pt
Total dollar returns: (Pt Pt -1 ) + Dt
First component: capital gain (or loss) due to change in price
Second component: income from investment
Percentage returns: (Pt Pt -1 + Dt )/Pt -1 = (Pt Pt -1 )/Pt -1

Relative Valuation: Introduction
Concept
In relative valuation, the value of an asset is compared to the
values assessed by the market for similar or comparable assets.
To do relative valuation, you need to:
Identify similar assets and obtain market v

Discounted Cash Flows
Compare money flows occurred at different points of time
By compounding: converting earlier money to a later value
By discounting: converting later money to an early value
t=0
1
Present value (PV)
T-1
T
Future value (FV)
Future va

FINM 3005, Corporate Valuation
Semester 2, 2014
Lecture 5
DCF Valuation
Lecturer: Jozef Drienko
ANU School of Finance, Actuarial Studies and Applied Statistics
Agenda for todays lecture
Different types of NPV models:
Enterprise DCF model (we only use th

FINM 3005, Corporate Valuation
Semester 2, 2014
Lecture 4
Cost of Capital
Lecturer: Jozef Drienko
ANU School of Finance, Actuarial Studies and Applied Statistics
Agenda for todays lecture
Cost of capital: overview
Underlying theory of WACC (some revisio

FINM 3005, Corporate Valuation
Semester 2, 2014
Lecture 6
Incorporating Growth Potential
Lecturer: Jozef Drienko
ANU School of Finance, Actuarial Studies and Applied Statistics
Agenda for todays lecture
A more qualitative lecture
Growth potential an ove

FINM 3005, Corporate Valuation
Semester 2, 2014
Lecture 9
Sensitivity & Scenario Analysis
Lecturer: Jozef Drienko
ANU School of Finance, Actuarial Studies and Applied Statistics
Agenda for todays lecture
Main purpose of sensitivity and scenario analysis

FINM 3005, Corporate Valuation
Semester 2, 2014
Lecture 11
Special Topics
Lecturer: Jozef Drienko
ANU School of Finance, Actuarial Studies and Applied Statistics
Agenda for todays lecture
Some other aspects worth knowing about:
1. Cross border valuation

FINM7041/2002 Applied
Derivatives/Derivatives
Lecture 2 - Forwards and Futures
1
Review of Previous Lecture
In last weeks lecture we went
through a broad overview/revision
of forward, futures and options
contracts.
In particular we focussed on the
mechani

FINM7041/FINM2002 Applied
Derivatives/Derivatives
Lecture 8 - Black-Scholes Option
Pricing Model
Review of Previous Lecture
Last week you examined option
pricing methods within a binomial
framework (through the use of
binomial trees).
You discussed the id

FINM 3005, Corporate Valuation
Semester 2, 2014
Lecture 3
Forecasting & Model Integrity
Lecturer: Jozef Drienko
ANU School of Finance, Actuarial Studies and Applied Statistics
Agenda for todays lecture
Forecasting advice making sure your model gives you

FINM 3005, Corporate Valuation
Semester 2, 2014
Lecture 7
Multiple-Based Valuations
Lecturer: Jozef Drienko
ANU School of Finance, Actuarial Studies and Applied Statistics
Agenda for todays lecture
Introduction to multiple-based valuation
Identifying ma

FINM7041/FINM2002
Applied
Derivatives/Derivatives
Lecture 1 - Course Overview
1
Course Overview
This course provides in-depth coverage of
options, futures, forwards and swaps on a
range of underlying commodities including
stocks, interest rates, foreign e

Free Cash Flow
Concept of free cash flow
Future cash flows generated from an investment that are free to
distribute to the investors (including stockholders and creditors)
that determine the value of the investment.
Financial cash flow presents free ca

Week 7 Review Questions
Question 1
(a) You can compute the PE ratio using current earnings, trailing earnings, and forward
earnings. What is the difference between the ratios, and which one is likely to yield the
highest value and why?
(b) An analyst has

Using Excel to Estimate a simple Liner Equation
Consider the CAPM:
~
~
Rit RMt it
A data file is given (attached), which contains 72 observations for each of the return variables
(columns A to G).
Step 1: Use the SLOPE function to estimate the beta.
Consi

Week 3 Review Questions
Question 1
Respond true or false to the following statements about the free cash flow to the firm.
(a) The free cash flow to the firm is always higher than the free cash flow to equity.
(b) The free cash flow to the firm is the cum

(1) Ill distribute the problem-set questions in class on this Thursday (10 March
2016). The questions will NOT be posted on wattle. Ill brief on the problem set
and explain the requirements at the beginning of Thursdays class.
(2) An excel file for suppor

Week 4 Review Questions
Question 1
The following table lists the stock prices for Microsoft from 1989 to 1998. The company did not pay any
dividends during this period.
Year
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
Price
$ 1.20
$ 2.09
$ 4.64
$ 5.

Week 6 Review Questions
Question 1
Respond true or false to the following statements about the free cash flow to the firm.
(a) The free cash flow to the firm is always higher than the free cash flow to equity.
(b) The free cash flow to the firm is the cum

Week 1 Review Questions
1. The value of an investment
A.
B.
C.
D.
is the present value of the cash flows on the investment.
depends on demand and supply.
is often a subjective estimate, coloured by the bias of the analyst.
all of the above
2. There are ma

Executive summary
Being established in 1999, JetBlue Airways has achieved rapid and stable growth in several
years. By focusing on the high-quality customer service and affording greater economies of
scale, JetBlue showed outstanding performances despite

Week 5 Review Questions
Question 1
Your friend is celebrating her 35th birthday today and wants to start saving for her anticipated
retirement at age 65. She wants to be able to withdraw $20,800 from her savings account on
each birthday for 15 years follo

FINM8007
TOPICS IN INTERNATIONAL FINANCE
This course is designed to provide students with the theoretical and analytical skills
necessary to understand and evaluate key financial issues in the international finance
and capital markets. Students will be in

RESEARCH SCHOOL OF FINANCE,
ACTUARIAL STUDIES AND STATISTICS
College of Business & Economics, The Australian National University
REGRESSION MODELLING
(STAT2008/STAT4038/STAT6038)
Solutions to Sample Assignment 1
Question 1
(20 marks)
The dataset prostate

Gambling in Young Adolescents
Susan G. Ide-Smith and Stephen E.G. Lea
University of Exeter, Department of Psychology
A questionnaire was used to investigate gambling in British adolescents. Responses from fifty 13- to 14-year-olds were analyzed. G a m b l

JetBlue TN v3.0
This spreadsheet supports STUDENT analysis of the case,
"JetBlue Airways IPO Valuation" (UVA -F- 1415)
Revised, February 2007
Copyright (C) 2004, by the University of Virginia Darden School Foundation.
Exhibit 7
JETBLUE AIRWAYS IPO VALUATI

RESEARCH SCHOOL OF FINANCE,
ACTUARIAL STUDIES AND STATISTICS
College of Business & Economics, The Australian National University
REGRESSION MODELLING
(STAT2008/STAT4038/STAT6038)
Sample Assignment 1
Instructions
This is NOT your current assignment. It is