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PV RI (t-1) = RIt/(1+r-w)=RIt/(1+r)
PS model adds a liquidity factor to the Fama French model. Less liquid
assets should have a positive beta, while more liquid assets should
have a negative beta. =Fama French required return + (liquidity beta *
liquidity risk premium)
-Can be better than P/E when comparing firms with different degrees of
leverage -EBIDTA is good for valuing capital intensive businesses with
high degrees of depreciation/amort-EBIDTA is typically positive, even
when EPS is not.
AKA "Economic Profit" is the net income of a firm less a charge that
measures equity holders opportunity cost of capital. *This concept is
not reflected in accounting income, where a firm can report positive NI
but still not be meeting return requirements of equity investors.
Yes - but this is a deviation from the treatment if the question is
part of a financial statement analysis item set - in which case you
would remove goodwill.
Strategic - Achieves synergies. Financial transactions assume no synergies, as when the two firms are in different industries.
Excess earnings are firm earnings minus the earnings required to
provide the required rate of return on working capital and fixed
assets.*Value of intangible assets is estimated as the PV of the growing
stream of excess earnings.Vintan = Excess Earnings * RI growth
rate/(k-g)
HPr = [(P1-P0)+CF1/P0] -1 *Includes return from cash flow yield and price appreciation.
Tread them like debt, but the dividends are not tax deductible like interest payments are.
1.)Identify a benchmark firm2.)Estimate beta of the benchmark
(regression)3.)Unlever the beta estimate Bu=BL*[1/(1+D/E)]4.)Lever up
for the firm in questionBeta estimate = unlevered beta from 3.)*[1+D/E]
EVA = NOPAT - (WACC*invested capital) = [EBIT*(1-t)-$WACC Where, NOPAT
= Net operating profit after taxInvested capital = net working
capital+net fixed assets = book val of long term debt + book value of
equity.
V0 = [D0(1+gl)/(k-gl)] + [Do H*(Gs-GL)/(k-gl)]Where H = "Half Life" =
(T years high g/2)*the H value approximation is more accurate the
shorter the high growth period or the smaller the spread btw short and
long term growth.
-CAPM Is simple, one factor-Multifactors have higher explanatory
power, but are more complex and expensive -Build up (no beta)models
(ie,bnd yld +prem) are simple and apply to closely held firms. Weakness
is that they use historical values as estimates.
Normalized earnings is an estimate of EPS in the middle of the business cycle.
Pre tax, pre interest measure that represents flows to both equity and debt
Capitalize and amortize R&D, add em back to earningsAdd back
charges on strategic investments that will generate returns in the
futurecapitalize goodwill SEE PG 197 for more......too long for a note
card.
TIC refers to the market value of invested capital. It is the market
value of the firms equity and debt.*this measure includes cash and short
term investments
SUE = Earnings Surprise / Standard Deviation of Earnings Surprise*The higher the SUE, the bigger the POP.
The cash available to common shareholders after funding capital
requirements, working capital needs, and debt financing requirements.
1.)CF = Earnings + Non Cash Charges 2.)Adjusted Cash Flow (Adj CFO)3.)FCFE - theory says use this method4.)EBIDTA
total discount = 1- [(1-DLOC)(1-DLOM)]*Because they are applied in a
sequential process, they are multiplicative, not additive.
GG: r = D1/P0 + g H Model: r = [(D0/P0){(1+gl)+[H (gs-gl)]}]+GL
SGR = b * ROEWhere b = earnings retention rate = (1-payout)ROE =
return on equity *sustainable g represents the rate at which earnings
can continue to grow indefinitely, assuming the debt to equity ratio is
unchanged and no new equity is issued.
Simply use V0(current price) = D0(1+g)/(k-g)*We are given required
return, current price, and dividend - just rearrange and solve for g
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