Chapter 6 - Value & Value Creation

Question 1

What is the formula for the value of an asset at date 0?

Also used to find the value of a company

Answer 1

V0=∑CF/(1+r)^t +VR/(1+r)^t

The summation of the discounted cash flow + the residual value of the asset in the end.

Question 2

What is the value of equity (value of assets for shareholders)?

Answer 2

C0=∑div/(1+k)^t

Question 3

What is the value of equity, if dividends grows at a constant rate?

Answer 3

C0=div/(k−g)

Question 4

How do you calculate a company’s FCF?

Answer 4

FCF= EBITDA−EBIT*(1-T)−∆fixed assets−∆WCR

Question 5

How do you calculate the WACC of a company?

Answer 5

WACC=(k∗E)/((E+D))+(i∗(1−T)D)/((E+D))

Question 6

How do you calculate the NPV of a project?

Answer 6

NPV=V−I0

The value is calculated by the FCF method.

I0 is the initial investment of the project

Question 7

What is the IRR?

Answer 7

The discount rate of a project, such that NPV = 0. The sum of the outflows is equal to the sum of the discounted inflows.

Question 8

What is the components to calculate the value of the operating assets?

Answer 8

The free cash flow,

The required rate of return on assets: WACC

Question 9

What is the components to calculate the value of equity?

Answer 9

The cash flow from dividends,

The required rate of return on equity, k (ROE)

Question 10

What is the components to calculate the value of debt?

Answer 10

The cash flow from interest and principals,

the required return (interest rate)