Valuation Flashcards
What are the four characteristics of an ideal valuation approach?
Precision (unbiased), realistic assumptions, user friendly, understandable output
Firm value is positively affected by_______ future dividends and a_________ required rate of return on equity.
higher and lower
What is the formula for the two-stage dividend discount approach?
EqV_0=(∑(t=1)^∞
(Dividend_t)/(1+r_e )^t ) +
((Dividend(n+1))/((r_e-g) ) * 1/(1+r_e )^n
The firm value is positively affected by________ free cash flows and a________ WACC
higher and lower
What is the formula for EV according to the DCF-model?
EV_0=(∑(t=1)^∞
(FCFF_t)/(1+WACC)^t )
+
((FCFF(n-1))/((WACC-g) ) * 1/(1+WACC)^n
EqV=EV-NIBD
What is the formula for EV according to the equity value approach?
EqV_0=⏟(∑(t=1)^∞
(FCFE_t)/(1+r_e )^t )
+
((FCFE(n+1))/((r_e-g) ) * 1/(1+r_e )^n )
EV=EqV+NIBD
What is the formula for EV according to the EVA approach?
EV_0=Invested capital_0 + ∑_(t=1)^∞(EVA_t)/(1+WACC)^t
, where
EVA_t=NOPAT_t-WACC*Invested capital_(t-1)
Firm value is positively affected by________ future EVAs and a________ WACC
higher and lower
EVA two stage model?
EV_0=Invested capital_0
+
(∑(t=1)^∞ (EVA_t)/(1+WACC)^t )
+
((EVA(n+1))/((WACC-g) )*1/(1+WACC)^n
What is true about the terminal value if ROIC = WACC?
a) The terminal value make up 100% of the EV
b) The terminal value make up 0% of the EqV
c) The terminal value make up 100% of the EqV
d) The terminal value make up 0% of the EV
d)
Which of the following relations are true?
a) PV(EVA)>0⟹MV_company>BV_(Invested capital)
b) PV(EVA)<0⟹MV_company<BV_(Invested capital)
c)PV(EVA)=0⟹ROIC=WACC⟹
MV_company=BV_(Invested capital)
d) All of the above
d)
Residual income two stage model?
EqV_0=BV_Equity_0
+
(∑(t=1)^∞(RI_t)/(1+r_e )^t )
+
((RI(n+1))/((r_e-g) )*1/(1+r_e )^n )
What is the main difference between the RI and EVA model?
The transactions with debt holders make up the difference between the EVA model and the RI model. While the EVA model measures value from both an equity and debt perspective (EV), the RI model measures value from an equity perspective only
Which of the following relations are true?
a) PV(RI)>0⟹ROE_future>r_e
⟹MV_company>BV_(Invested capital)
b) PV(RI)<0⟹ROE_future<r_e
⟹MV_company<BV_(Invested capital)
c) PV(RI)=0⟹ROE_future=r_e
⟹MV_company=BV_(Invested capital)
d) All of the above
d)
Adjusted present value two stage model?
EV_0=(∑(t=1)^∞
(FCFE_t)/(1+r_a )^t )
+
((FCFE(n+1))/((r_a-g) )1/(1+r_a )^n )
+
(∑(t=1)^∞
(TS_t)/(1+r_a )^t )
+
((TS(n-1))/((r_a-g) )1/(1+r_a )^n )
