Session 10

Question 1

Cost of equity

Answer 1

CAPM

Risk free rate + beta * (risk-free rate - market rate of return)

Question 2

Valuation model overview

DDM

Answer 2

Discount dividend model
Equity value
PV of dividends

Question 3

Valuation model overview

DCFE

Answer 3

Discounted cash flow to equity
equity value
PV of free cash flows accruing to firms equity

Question 4

Valuation model overview

DCFF

Answer 4

discount cash flow to firm
Firm value
PV of free cash flows accruing to debt&equity

Question 5

Valuation model overview

EVA-E

Answer 5

Economic value added
Equity value
Book value of equity + PV of abnormal earnings to equity

Question 6

Valuation model overview

EVA-F

Answer 6

Economic value added firm
Firm value
Book value of debt and equity + PV of abnormal earnings to debt and equity

Question 7

Sources of valuation differences

Answer 7

Typos/errors:most likely source
Inconsistencies: maybe in purpose
Key valuation parameters not steady in terminal year: capital structure & income vs assets
Change in risk profile;
- Changes in cost of capital over time
- Time structure of valuation models differ