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Lecture 9: Prospective analysis (2) - Coggle Diagram
Lecture 9: Prospective analysis (2)
Common fundamental valuation models
Discounted CF = PV of FCF to equity
Discounted abnormal earnings
(residual income)
value of equity = BV of equity + discounted forecasts of
abnormal earnings
Discounted dividends
The discounted CF model
Dividends
= Operating CF - Capital outlays + Net CF from debt owners
Dividends
= Net income - Change in BV of net assets + Chang in BV of net debt
Dividends
= FCF to equity holders
Formula: page 8
Net debt
= interest bearing debt - cash
Discounted abnormal earnings (
residual income
)
Assume: clean surplus accounting
formula: page 11 - 12
Fundamental value of equity = BV of equity + PV of future abnormal earnings
better predictor of value
TV =
terminal value
, goes beyond our forecasting horizon
formula: page 15
Ohlson model
(page 16)
Negative BV of equity
Equity value = Abnormal NOPAT - Net debt (
page 18
)
Undo
accountants' conservatism
that may have led to negative BV
discount rate (page: 20)
Cost of equity capital: CAPM
WACC (page: 23)
cost of debt
(after consideration of tax) =
NIEAT/ Net debt
deviation
of a firm's fundamental value from its book value
Continuity correction
(page 29)
assume earnings arrive at the
mid- year
adjust the value estimates (excluding the BVE part) upward by [
1 + 0.5
r*
]