Financial Modeling and Valuation Week IV Notes
Financial Modeling and Valuation Week IV Notes BU.230.620.W4.SP16
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This 4 page Class Notes was uploaded by Kwan on Thursday April 7, 2016. The Class Notes belongs to BU.230.620.W4.SP16 at Johns Hopkins University taught by Dr. Ken Yook in Spring 2016. Since its upload, it has received 27 views. For similar materials see Financial Modeling and Valuation in Finance at Johns Hopkins University.
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Date Created: 04/07/16
Modeling IV Thursday, April 7, 209:03 1.WACC -‐-‐CAPM DDM CAPM: use market risk premium (not E(rm), but [E(rm) –rf]) In practice, use 10 yr maturity or above (long -‐term) treasury rate as risk-‐free rate Excel: Estimating the Beta Coefficient Returns Under data -‐-‐ data analysis -‐-‐regression -‐-‐ Y(intel)/X(SP500) Select (SP500-‐X/INTE-‐Y) -‐-‐Insert scatter chart: click one point -‐-‐add trendline -‐-‐ display equation on chart Beta: check online don't have to calculate (yahoo finance…), but different cuz: Time period for estimation Time interval for return measure The choice of market index Forward-‐looking beta: Adj beta: average beta d= 1 (in the future, move to average); weighted: =0.33*1+0.67 *raw beta Raw beta Estimating Market risk premiums: better don't estimate rm 1) Historical: not the -‐ -‐> judge, -‐8%ge: 5% Excel -‐-‐page 100: =geometric/average -‐-‐> annualized 2) Survey: US -‐-‐5.5%; China -‐-‐8.1% 3) Implied market risk premiums (not recommended) Size Premium: Equity risk premium: CAPM captures Small stock premium: in practice, beta cannot capture it, added Pure play approach: use comparable companies' data 2.Cost of Debt Equity risk premium: CAPM captures Small stock premium: in practice, beta cannot capture it, added Pure play approach: use comparable companies' data 2.Cost of Debt 1) YTM: =Rate =Yield: dates needed Eg: maturity 25 coupon 0.09 semiannually par 1000 price 908.71 YTM =RATE(25*2,1000*0.09/2,-‐908.71,1000)*2 annual 2) FINRA (Maryland, controls the bond market): PPT37 sources of bond data (search -‐-‐symbol -‐-‐yield shown as the last column: average of long-‐term & short-‐term) Bondsonline: -‐-‐corporate bond spreads, use bond ratings -Ai n in FINR basis points, risk premium; /Yahoo bonds center: only As… Two: default premium, -‐term (aaa or bbb?; 1 yr or 15 yr) Use Average of short -‐term & Average of long-‐term yields to calculate 3) Last method =(Income statement) interest expense/inter-setaring debt (balance sheet) But it's historical 3.Bloomberg: Capital structure: calculate weights Cost of equity: =risk free rate + beta*country premium (market premium) (Equity risk premium = beta*country premium) Eg. WACC= Weight Cost equity 149743 =B2/$B =3.52%+0.88* market $5 6.75% STD 12235 =B3/$B 0.0316 $5 LTD 23039 =B4/$B 0.0521 equity 149743 =B2/$B =3.52%+0.88* market $5 6.75% STD 12235 =B3/$B 0.0316 $5 LTD 23039 =B4/$B 0.0521 $5 =SUM(B2:B4) Tax 0.281 WACC =C3*D3*(1-‐B6)+C4*D4*(1-‐ B6)+C2*D2 4.Lec 4: Valuation If break value > market value: m&a or target Intrinsic value: largest of breakup ( -‐-‐> be (>be liquidated), ‐ -‐ economic values (often) Eg. PPT 9 Adjust CF or r (r: more used) FCFF: primary model Error often in: Change in net operating working capital Cf. Working capital Operating working capital: exclude short-‐term inv & debt; include cash (PPT 18) 5.Excels 1) FCFF valuation (all investors) 2015 not included If use net fixed asset difference, = depreciation + CapEx Judgment: too much cash -‐-‐> don't include cash in OCA (operating cash?) (B69/B62) Terminal value: -‐3% -‐-‐US long-‐term growth rate (g?); EV/EBITDA: more practical Nonequity claims: simplify with only debt 2) Relative (Comparative) Valuation Method - Excel examples Terminal value: -‐3% -‐-‐US long-‐term growth rate (g?); EV/EBITDA: more practical Nonequity claims: simplify with only debt 2) Relative (Comparative) Valuation Method - Excel examples EBITDA -‐-‐most used 3) FCFE: net income starts; change of debt (cf. FCFF) Next class: Crystal ball download HW: part 3
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