02 Lecture Flashcards
When do you use the Equity Approach
When valuing banks and investment firms
Which two approaches representing the DCF
- Entity Approach (WACC, APV)
- Equity Approach
How to calculate the Net Operating Profit after Taxes (NOPAT)
NOPAT = EBIT - Taxes
How to calculate the Free Cash Flow to Firm (Entity Approach)
NOPAT + Depreciations - Investments +- Change of Net Operation Working Capital
How to calculate the Net Income (NI)
NI = Earnings Before Taxes (EBT) - Taxes
How to calculate the Free Cash Flow to Equity (Equity Approach)
NI + Depreciations - Investments +- Change of Net Operation Working Capital - Cash flow to dept
What is the FCFE
The Free Cash Flow to Equity is the amount of money that can be distributed to equity holders
How to calculate the Total Entity Value (Firm Value)?
Value of operations (Enterprise Value) + Value of non-operating Assets (e.g. Cash Holdings)
V = V_op + V_nop
What is the lower and upper bound of g in the Gorden-Growth Formula
g has to be higher than the inflation rate
g has to be lower than the nominal GDP growth
Simplification of Market Value of Dept
Book value of dept.
Not a good assumption if the company is at default
In the DCF you only have to take … liabilities into acount
interest bearing liabilities
Why is the Beta very noisy?
Depends on the
- time period
- sampling frequency
- market models
- etc
Why do Betas of companies need to be re-leveraged
- Company-specific leverage has large influence
- Beta with leverage of target company has to be calculated
- adjustment can be done via the WACC-formula
When does the circularity problem of the WACC arise
When you calculate the WACC of a company where the capital structure is given or a given debt value
What is the highest maturity you can use the Svensson-Method for?
30 years
