CP 1 module

Question 1

Value shaping factors (Rappaport)

Answer 1

1.period of value growth
2.sales growth rate
3.operating profit margin
4.additional investments in fixed assets
5.Additional investments in working capital
6.Income tax rate
7.Cost of capital

Question 2

period of value growth

Answer 2

the number of years during which an investment provides growth
exceeding the cost of capital

Question 3

cost of capital

Answer 3

minimum rate of return(revenue) that a company must earn before generating value(profit)

Question 4

sales growth rate

Answer 4

results from the analysis of the product and its market share. Examining
the sales growth rate answer the question whether there are opportunities for further
development or entering new market areas.

Question 5

Operating profit margin

Answer 5

Operating profit margin is a crucial financial ratio that measures a company’s profitability from its core operations. It indicates how much profit a company generates from each dollar of revenue it earns.
OPM=(Gross profit/Revenue)*100%

Question 6

Additional investments in fixed assets

Answer 6

gives the opportunity to increase sales. They are
defined as the excess of capital expenditures over depreciation and amortization;
(upgrading equipment, buying new technology)

Question 7

Additional investments in working capital

Answer 7

Additional investments in working capital refer to the allocation of funds to increase a company’s current assets, which are used to finance its day-to-day operations.

Question 8

Income tax rate

Answer 8

can reduce future CF

Question 9

financial Determinants of value creation

Answer 9

Sales growth rate
Operating profit margin
Income tax rate
Investments in working capital
Investments in fixed assets
Cost of capital…

Question 10

Non-financial Determinants of value creation

Answer 10

Innovation
Quality
Customer Relations
Management
Alliances
Technology
Brand Value
Employee relations
Public relations
Attitude towards the environment

Question 11

Oriented on a company’s historical data

Answer 11

asset-based approach

Question 12

used to value falling companies and natural resource companies

Answer 12

asset-based approach

Question 13

Oriented on a company’s future potential(Free cash flow to equity, Free cash flow to firm, Economic value added, Adjusted present value, Dividend discount model)

Answer 13

Income based approach(discounted CF model)

Question 14

it’s complex and requires a sensitivity analysis

Answer 14

Income based approach (discounted CF model)

Question 14

Requires to predict company’s incomes and cost of equity/capital

Answer 14

Income based approach (discounted CF model)

Question 15

used to value mature growing concerns companies and start ups

Answer 15

Income based approach (discounted CF model)

Question 16

It’s the most complex (real option pricing model)

Answer 16

Option based approach (contingent claim model)

Question 17

For it income based methods is a starting point

Answer 17

Option based approach (contingent claim model)

Question 18

Used to value natural resource companies (gas, oil)

Answer 18

Option based approach (contingent claim model)

Question 19

Requires to find peer companies and to know less transaction prices of pure companies or their fundamentals

Answer 19

Market based approach

Question 20

Sensitive to different accounting systems and rules

Answer 20

Market based approach

Question 21

can overvaluate during bull market (growth in stock prices) and undervaluate during bear market(decline of stock prices)

Answer 21

Market based approach

Question 22

Used the value companies from finance industry

Answer 22

Market based approach

Question 23

Requires to separate data for every business part which is going to be evaluated

Answer 23

A Mixture Of the single valuation methods (Asset based, income based, option based, market based)

Question 24

Can skip the synergy effect(combining two or more elements produces a more significant effect than they would have individually.)

Answer 24

A Mixture Of the single valuation methods (Asset based, income based, option based, market based)

Question 25

a special case of the sum of the sum-of-the-parts valuation is a relative valuation, which peer group is divided in a view of company’s sectors, valued as a separate elements, and then summed up

Answer 25

A Mixture Of the single valuation methods (Asset based, income based, option based, market based)

Question 26

Used to value complex corporations operating at the same time in many different industries

Answer 26

A Mixture Of the single valuation methods (Asset based, income based, option based, market based)