CHAPTER THREE How Financial Statements are Used in Valuation Stephen H. Penman The web page for Chapter Three runs under the following headings: What the Chapter is Doing Historical Multiples Historical Equity and Bond Returns The Selection of Comparable Firms Screening Engines Calculating Multiples Unlevered (or Enterprise) Multiples Beware of Price-to-ebitda Ratios P/E Ratios and Dividends Price-to-sales
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“economical” project or investment. • A positive “Net PW” indicates that the investment or project has an annual rate of return greater than the MARR. • A zero “Net PW” indicates that the investment or project has an annual rate of return exactly equal to MARR. • Similarly, a negative “Net PW” indicates that the investment/project has an annual rate of return less than MARR, hence, not preferable. • When comparing alternatives, the alternative with a higher “Net PW” is preferred over one
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BUSINESS FINANCE FAO: DIRECTORS, NATURALLY FRESH PLC CONTENTS Page(s) 1. Introduction 3 2. Required Rate of Return on Equity 3 3. Beta 3 4. Capital Asset Pricing Model 4 5.1 Limitations of CAPM 4 5.2 The APT Model 4 5.3 The Three-Factor Model 4 5.4 Required Rate of Return using APT or Three-Factor 5 Model 5. Bonds 5 6.5 How bond prices are determined
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Chapter 08 - Stock Valuation CHAPTER 8 STOCK VALUATION Answers to Concepts Review and Critical Thinking Questions 1. The value of any investment depends on the present value of its cash flows; i.e., what investors will actually receive. The cash flows from a share of stock are the dividends. Investors believe the company will eventually start paying dividends (or be sold to another company). In general, companies that need the cash will often forgo dividends since dividends are a cash expense
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is permitted, but please show how answers were obtained. A numerical answer without an explanation will be given a grade of zero. 1 1. Robinson Crusoe (RC) lives only two periods (today and tomorrow). He prefers to consume the same amount of money in each period, but his income stream is $500 today and $110 tomorrow. Assume that RC can borrow and lend at an interest rate of 10%. a) Graphically show all the possible combinations of consumption today and tomorrow available to RC. On this graph
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Midterm Study Guide Fin 5170 Fall 2009 The exam will consist on multiple choices, and problems and may be an essay question. I will ask a maximum of two questions taken from the following material covered in class: Chapter 1 • Describe the concept of agency problems and different ways to ameliorate agency problems in a corporation Chapter 3 • Example 3.7 (pages 65-66) • Use the concept of arbitrage to explain the price of Security A in table 3.8, and Security B in table
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patent, by selling it to a third party for a one-time licensing fee. Regards S G Shrinivas EXECUTIVE SUMMARY Dr. Ramkumar wants to apply for a patent for his research on a cost-effective Siddha product for coronary atherosclerosis. A decision, whether to go ahead with the request, will have to be made, as this could have long standing implications for both Siddha and the institute. Among the options available for patenting the product - One-time licensing fee or leaving the manufacturing to
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fund the one-time cleanup costs of $35,778,500 (please see question 1 for details), the city has to issue a bond. The bonds carry an annual interest rate of 8 percent and the entire principal is due in 20 years. To lower the risk of the bondholder and to ensure that the city has enough funds to payoff the bond in 20 years, the city must set up a sinking fund in a separate custodial account. The accumulated amount or periodic contributions regularly made by the city for 20 years should equal the principal
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MSC: Analytic 4. The future value of $1 saved today is $1/(1 + r). ANS: F DIF: 1 REF: 27-1 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Present value MSC: Analytical 5. The present value of any future sum of money is the amount that would be needed today, at current interest rates, to produce that future sum. ANS: T DIF: 1 REF: 27-1 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Present value MSC: Interpretive 6. The sooner
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Formula of Business Finance Time Value of Money ➢ Future Value of simple interest: [pic] ➢ Present Value of simple interest: [pic] ➢ Future Value of compound interest for single cash flow: [pic] ➢ Present Value of compound interest for single cash flow: [pic] ➢ Future Value of compound interest for multiple cash flows: [pic] ➢ Present Value of compound interest for multiple cash flows: [pic] ➢ Future Value of continuous compounding:
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