...DESCRIPTION The second core course in Finance deals with the core corporate finance functions in an applied setting. The participants are exposed to real world corporate finance decisions to be taken up by managers for creating value. Such an exposure is accomplished through a mix of theory and practice. The pedagogy employed reflects a judicious mix of case discussions, lectures and problem solving approach. COURSE OBJECTIVES The objective is to familiarize participants with the three major decision areas of Corporate Finance, viz. the investments, financing and earnings distribution decisions. Subsequently the participants are to be offered an integrated view of the decision areas by discussing the issues in corporate valuations and risk management. The course aims at sharpening the financial decision making skills of the participants. EXPECTED LEARNING OUTCOMES AND ASSOCIATED MEASURES At the end of the course student is expected to accomplish the following learning outcomes. Alignment of Course Learning Outcomes (CLOs) with the Programme Learning Goals & Objectives and Assessment of the learning outcomes of the course is presented below: Course Learning Outcomes Have fundamental understanding of corporate finance, and apply skills in corporate financial decision making in the three major decision areas, viz. the investments, financing and earnings distribution decisions Program Level...
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...Discounted Cash Flow Valuation: Basics Aswath Damodaran Aswath Damodaran 1 Discounted Cashflow Valuation: Basis for Approach t = n CF t Value = ∑ t t = 1( 1 +r) where CFt is the cash flow in period t, r is the discount rate appropriate given the riskiness of the cash flow and t is the life of the asset. Proposition 1: For an asset to have value, the expected cash flows have to be positive some time over the life of the asset. Proposition 2: Assets that generate cash flows early in their life will be worth more than assets that generate cash flows later; the latter may however have greater growth and higher cash flows to compensate. Aswath Damodaran 2 Equity Valuation versus Firm Valuation n n Value just the equity stake in the business Value the entire business, which includes, besides equity, the other claimholders in the firm Aswath Damodaran 3 I.Equity Valuation n The value of equity is obtained by discounting expected cashflows to equity, i.e., the residual cashflows after meeting all expenses, tax obligations and interest and principal payments, at the cost of equity, i.e., the rate of return required by equity investors in the firm. t=n Value of Equity = CF to Equity t ∑ (1+ k )t t=1 e where, CF to Equityt = Expected Cashflow to Equity in period t ke = Cost of Equity n The dividend discount model is a specialized case of equity valuation, and the value of a stock is the present value of expected future dividends...
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...1997. Copyright in all or part of this publication rests with the RICS, and save by prior consent of the RICS, no part or parts shall be reproduced by any means electronic, mechanical, photocopying, recording or otherwise, now known or to be devised. Reprinted 2001 Printed by Quorn Litho Contents Information Papers Executive Summary Preface 1 1.1 1.2 1 .3 2 2.1 2.2 2.3 3 3.1 3.2 3.3 3.4 3.5 4 4.1 4.2 4.3 4.4 5 5.1 5.2 6 6.1 6.2 6.3 7 7.1 7.2 7.3 8 8.1 8.2 8.3 4 5 7 Valuation and Calculation of Worth A discussion of the role of the valuer and the distinction between valuation, appraisal and calculation of worth. Introduction Valuation and Calculation of Worth Pricing Models-Valuation 9 9 9 10 Appraisal Mathematics A study of present value theory, net present value and internal rate of return. Introduction Net Present Value (NPV) Internal Rate of Return (IRR) 11 The Valuation of Rack-rented Property A comparison of DCF and conventional approaches to...
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...zju.edu.cn/jzus E-mail: jzus@zju.edu.cn The Q theory of investment, the capital asset pricing model, and asset valuation: a synthesis MCDONALD John F. (College of Business Administration, University of Illinois at Chicago, Chicago, USA) E-mail: mcdonald@uic.edu Received Feb. 23, 2004; revision accepted Mar. 6, 2004 Abstract: The paper combines Tobin’s Q theory of real investment with the capital asset pricing model to produce a new and relatively simple procedure for the valuation of real assets using the income approach. Applications of the new method are provided. Key words: Investment theory, Asset pricing, Appraisal Document code: A CLC number: F832.48 INTRODUCTION This paper combines the economic theory of real investment and the standard financial model of asset pricing to produce a method for the valuation of real assets; and intentionally uses relatively simple versions of these two theories to link economics, finance, and appraisal. Numerical examples using data on real estate assets illustrate the valuation method. The Q theory of investment, introduced by James Tobin (1969), is popularly accepted theory of real investment hypothesized to be a positive function of Q, defined as the ratio of the market value to the replacement cost of capital. Standard presentation of the theory, such as that of Romer (1996), shows that Q is the value to the firm of an additional unit of capital, which is the discounted value of its future marginal revenue products. Extensions...
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...9-295-100 Rev. August 7, 1997 Cross-Border Valuation Cross-border investment has assumed a prominent place among the key decisions facing investors and corporate managers. In today’s increasingly global marketplace, many investment projects, corporate acquisitions and mergers have important international components. The importance of cross-border valuation methods have been underscored by trends toward the relaxation of capital controls, European economic integration, and, since the early 1990s, the opening and growth of Eastern European, Russian, Asian and Latin American markets. Cross-border acquisitions have been a particularly prevalent form of investment since 1980. American corporations, for example, increased their acquisitions of foreign targets by 160% between 1980 and 1990. Acquisitions of American targets by foreign companies rose about 50% during the same period. Some transactions, such as Matsushita Electric's $6.9 billion acquisition of MCA, Inc. in 1991, have been quite large. The majority, however, have been well under $100 million in size, suggesting that these transactions are not just the domain of giant multinationals. Evaluating crossborder opportunities is a critical consideration of executives and investors from around the world. The objective of this note is to review basic methods of valuing cross-border investments and the main issues affecting such valuations. It is intended to be a source of guidance, not a comprehensive review of...
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...customer’s expectation. In order for Guillermo to improve his company, Guillermo has to seek other alternatives and make financial decisions to increase sales to make profits. The contents of the paper will examining Sensitivity Analysis, Weighted Average Cost of Capital (WACC), multiple valuation techniques in reducing risks, calculate NPV for future cash flows and work out pro forma cash flow budget for the next five years for the organization and analyze the companies projected earnings (UOP, 2009). Analysis of Different Alternatives Guillermo has three available alternatives to evaluate the furniture store. First alternative is to keep itself in the current position. The current managers use capital budgeting techniques to find the best project among the group of projects. Current budget for Guillermo is $42,577 net income before taxes could observe capital markets for just a short time to convince consumer the market rates are not at a constant. Guillermo has to pay his laborer the amount of $20 to $30 an hour including overtime to perform the amount of work necessary to have quality furniture for consumers to choose from. However, only one expected/required return for a given risk level in an efficient capital market (Emery, Finnerty, and Stowe p. 189). Second alternative is the Hi-Tech...
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...------------------------------------------------- ------------------------------------------------- ------------------------------------------------- 1. How do you value a company? This question, or variations of it, should be answered by talking about 2 primary valuation methodologies: 1. Intrinsic value (discounted cash flow valuation) 2. Relative valuation (comparables/multiples valuation) * Intrinsic value (DCF) - This approach is the more academically respected approach. The DCF says that the value of a productive asset equals the present value of its cash flows. The answer should run along the line of “project free cash flows for 5-20 years, depending on the availability and reliability of information, and then calculate a terminal value. Discount both the free cash flow projections and terminal value by an appropriate cost of capital (weighted average cost of capital for unlevered DCF and cost of equity for levered DCF). In an unlevered DCF (the more common approach) this will yield the company’s enterprise value (aka firm and transaction value), from which we need to subtract net debt to arrive at equity value. Divide equity value by diluted shares outstanding to arrive at equity value per share. * Relative valuation (Multiples) - The second approach involves determining a comparable peer group – companies that are in the same industry with similar operational,...
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...investment policies in Tunisia: Unrestricted remittance of dividends Capital repatriation in case of liquidation Modified regulation to avoid double taxation of dividends Jersey Headquartered in UK, access to the European market for garments Jersey had multi-national manufacturing and sourcing experiences, great opportunity for Prince to lower its business risk through diversification Jersey can provide: state-of-the art fabric technology recognized design competence well established brand Investment opportunity Competitive Lower labor costs advantages Problem 2: Question: What makes the valuation of Prince’s venture different from the valuation of an identical project in a domestic setting? The valuation results on the same project are different because the business risk levels, e.g. ß of two companies are different. Jersery’s business is well diversified through multi-international investments. Its cost of capital can be calculated using CAPM: ( ) Prince has only one owner, Mr. Nakit, making its business risk less diversified. In addition, Prince’s business is domestic market based; therefore it is highly sensitive to the Tunisian economic conditions. According to the case, Prince’s estimated cost of capital is about 25%, significantly higher than that of Jersey. If Prince co-operate with a domestic company, the business risk of the JV would remain highly related to the market risk of Tunisia. If Prince establishes a JV with Jersey, because the volatility...
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...University of Pennsylvania ScholarlyCommons Wharton Research Scholars Journal 5-1-2006 Valuation of Venture Capital Securities: An Options Based Approach A. Lloyd Thomas University of Pennsylvania This paper is posted at ScholarlyCommons. http://repository.upenn.edu/wharton_research_scholars/36 For more information, please contact repository@pobox.upenn.edu. Wharton School Valuation of Venture Capital Securities: An Options Based Approach Disciplines Business | Finance and Financial Management This journal article is available at ScholarlyCommons: http://repository.upenn.edu/wharton_research_scholars/36 Valuation of Venture Capital Securities 1 Valuation of Venture Capital Securities An Options Based Approach Wharton Research Scholars 2005-2006 Investigator: A. Lloyd Thomas Supervising Professor: Dr. Raffi Amit Copyright © A. Lloyd Thomas, 2006 Valuation of Venture Capital Securities 2 Table of Contents Table of Contents................................................................................................................ 2 Introduction......................................................................................................................... 3 Venture Capital Financing Negotiations......................................................................... 3 Venture Capital Securities .............................................................................................. 6 Common Stock...
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...The Little Book of Valuation Aswath Damodaran Stern School of Business 44 West Fourth Street, 9-‐96 New York, NY 10012 Email: adamodar@stern.nyu.edu Phone: 212-‐998-‐0340 First draft: October 14, 2010 Preface Knowing the value of an asset may not be a prerequisite for investing or a guarantee for success, but it does help us make more informed judgments. For most investors, though, valuing an asset seems to be a task that is far too complex and complicated for their skill sets. Consequently, they either depend upon those that they regard as professionals (equity research analysts, appraisers) for their valuations or ignore value entirely when investing. In this book, I hope to show that valuation, at its core, is simple and that anyone who is willing to spend some time collecting information and analyzing it, can ...
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...of 1. governance issues of the firm [chap. 1 & lecture] 2. valuation concepts and processes [chap. 3, 5, 8, 9, 29] 3. capital budgeting estimation and decision methods [chap.6, 7] 4. debt, equity and lease financing issues [chap. 14, 20, 21] 5. risk defined and measured in a CAPM setting [chap. 10, 11] 6. variations in the calculation of cost of capital [chap. 13, 18] 7. capital structure and dividend policy decisions [chap. 15, 16, 17, 19] Suggested Other Courses: FIN 644 concerns of short-term financial planning and financing FIN 625 concerns of risk management with derivative securities FIN 620 concerns of multinational financial management Required Text: Ross, S., R. Westerfield, and J. Jaffe, Corporate Finance, current edition, Irwin. Recommended Supplemental Reading: The Wall Street Journal Barron's Value Line Investment Survey Financial Times Major Units of Instruction: Weeks Topics 1 Corporate Governance (extension of concepts from MBA 550) chap. 1 & lecture (Students review Chap. 2 Accounting Statements and Chap. 4 Time Value: these concepts are assumed) Goals and Conflicts Ethical Issues -- The Corporation and Society 2 & 3 Valuation concepts and processes chap. 3, 5, 8, 9, 29 Long-Term Financing and Valuation...
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...EMBA Program in Mexico City FINANCIAL MANAGEMENT: Spring 2012 Professor: Dr. Ramesh K. S. Rao Voice Mail: 512-475-8756 Fax: 512-471-5073 E-Mail: ramesh.rao@mccombs.utexas.edu Professor: Prof. James (Jim) Nolen Voice Mail: 512-471-5798 Fax: 512-471-5073 E-Mail: james.nolen@mccombs.utexas.edu Teaching Assistants: John Walker (Mexico City) Email : juan.walker@mba06.mccombs.utexas.edu Email 2 : jwalker22ar@gmail.com Mobile : 04455-16962736 Andres Herrera (Austin) Email: andres.herrera@mba12.mccombs.utexas.edu Mobile: 512-529-2730 Course Objectives • to introduce the concepts and theories of modern financial management, • to develop an appreciation for the usefulness of these theories for financial decision-making, • to develop the student's financial decision-making skills, • to provide an overview of current financial management theories and practices. Text Required: Corporate Finance by Ross, Westerfield and Jaffe, 9th ed., McGraw-Hill Irwin Supplemental: Financial Management, Concepts and Applications, 3rd ed., 1995, Ramesh K.S. Rao, SouthWestern Publishing Co., Cincinnati, a division of International Thompson. The...
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...memorandum presents a valuation of Telco Exchange (TX) and serves as a consultation for Valhalla Partners to consider its investment in TX. Art Mark’s Vote and Appropriate Valuation for Telco Exchange Art Marks should vote to make an investment in Telco Exchange because the company possesses many of the components which could make it a potential 67 million dollar company (from our valuation by DCF method using WACC -Appendix A). Telco has a product that solves large company high cost issues revolving around telecom equipment and telecom services (makes around $250,000 per software licensing deal). They have been profitable in 2002 and the potential to have a revenue of a 50 million annual revenue in four years time. They have sold their solutions to big companies including IKON and Marriot and currently have working relationship with AT&T for which some of their past, current and future customer references are coming from. So far Telco has the first mover advantage offering a more complete solution package than any other competitors at the current time. Valhalla had completed the valuation of ROI on a 3.75 million investment to Telco resulting in a 6.8 to 12.1 times their capital investment with the company valuation of 170 to 343 million. A conservative valuation of Telco resulted in a 115 to 140 million company valuation and a 4.6 to 6.1 times return on capital. Telco needed a total investment of 10 million, and Valhalla along with Columbia capital would be investing...
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...Industry Organization C. Measuring National Income and Growth D. Business Cycles E. The Monetary System F. Inflation G. International Trade and Capital Flows H. Currency Exchange Rates I. Monetary and Fiscal Policy J. Economic Growth and Development K. Effects of Government Regulation L. Impact of Economic Factors on Investment Markets IV. Financial Reporting and Analysis A. Financial Reporting System (with an emphasis on IFRS) B. Analysis of Principal Financial Statements C. Financial Reporting Quality D. Analysis of Inventories and Long-Lived Assets E. Analysis of Taxes F. Analysis of Debt G. Analysis of Off-Balance-Sheet Assets and Liabilities H. Analysis of Pensions, Stock Compensation, and Other Employee Benefits I. Analysis of Inter-Corporate Investments J. Analysis of Business Combinations K. Analysis of Global Operations L. Ratio and Financial Analysis V. Corporate Finance A. Corporate Governance B. Capital Investment Decisions C. Business and Financial Risk D. Capital Structure Decisions E. Working Capital Management F. Dividend Policy G. Mergers and Acquisitions and Corporate Restructuring VI. Equity Investments A. Types of Equity Securities and Their Characteristics B. Equity Markets: Characteristics, Institutions, and Benchmarks C. Fundamental Analysis (Sector, Industry, Company) D. Valuation of Individual Equity Securities E. Equity Market...
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...VALUATION AND ACQUSITION VALUATION AND ACQUISITION OF “TARGET COMPANY” LIMITED BY “INVESTOR” LIMITED BY: AKINTOYE AKINDELE DBA PROGRAM INTERNATIONAL SCHOOL OF MANAGEMENT DECEMBER 2011 INTRODUCTION CONTEXT This report reviews the investment/acquisition rationale, valuation (assumptions and methodology), negotiation and post acquisition events of the acquisition of 100 percent of the equity of “Target Company” limited by “Investor” Limited. While the names of acquiring and selling companies have been changed to Investor Limited and Target Company limited respectively for confidential reasons, the information and events here are factual and all the exhibits represent actual financial information of both companies especially Target Limited. BACKGROUND & BUSINESS OVERVIEW OF TARGET Target Limited is an aluminium continuous casting and cold rolling mill located in Ghana. The company was set up to implement the fourth processing leg of the proposed integrated aluminium industry for Ghana which comprised; bauxite mining – First leg, refining bauxite into alumina – Second leg, smelting alumina into raw aluminium ingots – Third leg and processing the ingots into flat rolled product – Fourth leg and Target’s business. The company was incorporated as a private company and granted license to commence business on 24th February, 1978 and 22nd March, 1978 respectively. Target was later converted into a public company on 28th May, 1996 and was listed on the Ghana Stock Exchange...
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