usually tick mark one or more of the above conditions Pros > Cons > > > > > Captures Market Sentiment Works best in the short run (between quarterly results) Quick & easier to apply & explain than fundamental approaches like DCF More relevant when inflow/outflow of funds changes or is expected to change significantly Very popular among Investment Banks‚ Brokerage houses & Mutual Funds. Implying that this is one of the ways in which the majority decide fair value (for the short
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* PV(CF) = CF/(1+r)t AKA PV = FV/(1+r)t * NPV = PV(CFs) – Investment = -C0 +C1/(1+r)+C2/(1+r)2+C3/(1+r)3+… = ∑(Expected CFt)/(1+r)t – Investment * Perpetuity – pays a fixed amount C per period forever * P(C‚r) = C/r requires cash flow to begin NEXT period. If begin now‚ then PV = C + C/r * Annuity – fixed stream of cash flows that has a final period t * A(C‚r‚t) = C/r [1-1/(1+r)t] * Growing Perpetuity – G(C‚r‚g) = C/(r-g) C is initial cash flow‚ r is discount rate
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In this case study a 15 month old girl with a diagnosis of failure to thrive is admitted to the pediatric unit and you’re her nurse. This patient was admitted 6 weeks ago with the same diagnosis. The mother appears to care for the child even though she is young and immature. The patient is very interactive with staff‚ smiling and laughing and she eats well during her stay. However‚ the patient draws away from the boyfriend when he visits. The nurse then receives a call for the patient’s biological
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Chapter 10 The Cost of Capital Learning Objectives After reading this chapter‚ students should be able to: Explain what is meant by a firm’s weighted average cost of capital. Define and calculate the component costs of debt and preferred stock. Explain why the cost of debt is tax adjusted and the cost of preferred is not. Explain why retained earnings are not free and use three approaches to estimate the component cost of retained earnings. Briefly explain the two alternative approaches
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tax write-off benefits‚ if any. This approach is rarely useful‚ and will typically serve as a minimum value (unless the firm is in severe distress). 3. (i.) Discounted Present Value of the Firm’s Free Cash Flows — commonly referred to as DCF Valuation‚ or WACC valuation Value of the Firm =
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Buffett’s Bid for Media General’s Newspapers Situation: Media General is a mature company which has a lot of business including newspapers‚ television broadcasting and digital businesses primarily serving the southeastern U.S. (Over 18 TV stations and 64 newspapers). While because of the popular of Internet from the 2000s‚ more than 300 daily newspapers disappeared and daily circulation of newspapers fell to 44 million in 2011‚ the U.S. newspaper industry is dropping. With the decreasing
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afterwards. Note from Table 1 that the present value of free cash flow from 2004 to 2010 is $8 million. Of course there are several ways to calculate PVH‚ the horizon value in 2010. The constant-growth DCF formula gives implying a company value in 2003 of: © 2002‚ R. A. Brealey and S. C. Myers Next suppose that Reeby Sports will lose its competitive edge by 2010 and will have no PVGO looking forward from that date. In that
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Mercury Athletic Footwear: Valuing the Opportunity Team 10 / Mergers and Acquisitions West Coast Fashions‚ Inc (WCF) was a large business‚ which dealt with men’s and women’s apparel. One of their segments was Mercury Athletic Footwear. WCF wanted to dispose off this segment. They just wanted to divest because they wanted to focus more on their core business and move it up to the elite class. John Liedtke was the Business Development Head at that time in Active Gear Inc. He had a clear idea that
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Hey Halder‚ I see that you are extremely worried about Robert Spencer coming to our school on May 1st and I am just as concerned about his ideas spreading around UB as well as the United States as a whole. As UB students and Americans we should protest his ideas and point to the repercussions that his ideas may have on the religion of Islam and as well as well-meaning Islamic people across the United States. However‚ I see where your form and methods of protest may go which may include a gathering
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One of the most widely used concepts in finance is that shareholders require a risk premium over bond yields to bear the additional risks of equity investments. While models such as the two-parameter capital asset pricing model (CAPM) or arbitrage pricing theory offer explicit methods for varying risk premia across securities‚ the models are invariably linked to some underlying market (or factor-specific) risk premium. Unfortunately‚ the theortical models provide limited practical advice on establishing
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