CHAPTER 7
All models of risk and return in finance are built around a rate that investors can
make on riskless investments and the risk premium or premiums that investors should
charge for investing in the average risk investment. In the capital asset pri

1
CHAPTER 20
REVENUE MULTIPLE S AND S ECTOR-SPECIFIC MULTIPLES
While earnings and book value multiples are intuitively appealing and widely used,
analyst s in recent years have increasingly turned to alternative multiples to value
companies. Fo r new econ

1
CHAPTER 19
BOOK VALU E MULTIPLES
The relationship between price and boo k value has always attracted t he attention
o f investors. Stocks selling fo r well belo w t he boo k value o f equit y have generally been
considered good candidates for undervalue

1
CHAPTER 18
EARNINGS MULTIPLES
Earnings multiples remain t he most commonly used measures o f relative value. In
t his c hapter , we begin w it h a detailed e xaminatio n o f t he price earnings ratio and t hen
move on to consider variants of the multipl

1
CHAPTER 17
FUNDAMENTAL PRINCIPLE S O F RELATIVE V ALUATION
In discounted cash flow valuation, the objective is to find the value of assets, given
t heir cash flow, growt h and risk characteristics. In relative valuation, t he o bjective is to
value a ss

0
CHAPTER 15
FIRM VALUATION: COST OF CAPITAL AND APV APPROACHES
In t he last two chapters, we examined two approaches to valuing t he equit y in t he
firm - the dividend discount model and the FCFE valuation model. This chapter develops
another approach t

1
CHAPTER 8
ESTIMATING RISK PARAMETERS AND COSTS OF FINANCING
In the last chapter, we laid the groundwork for estimating the costs o f equit y and
capital for firms by looking at how best to estimate a riskless rate that operates as a base
for a ll costs,

INVESTMENT
VALUATION: SECOND
EDITION
1
CHAPTER 1
INTRODUCTION TO VALUATION
Every asset, financial as well as real, has a value. The key to successfully investing
in and managing these assets lies in understanding not only what the value is but also the
so